Earlier this week, I received a wind-up notice from the US fund which had given me early exposure to the China market.
The fund was being wound up because it was complying with US regulations which were making it increasingly difficult to continue with investments in China. They were caught in an increasingly complex web of restrictions, sanctions and the rise of anti-China sentiment that now characterises the US political environment.
This, and the proposed ban on TikTok, holds some serious implications for those doing business in China or those wishing to invest in China and for those who are misidentified as mainland Chinese.
The media talk is that TikTok will be banned. This is not correct. The bill passed by Congress is an outstanding example of what can be called mafia capitalism. Simply put, the bill effectively says: “Give us your business, or we will put you out of business.” If TikTok is sold to a US company then all security concerns magically disappear, even though TikTok in the US runs on Oracle servers. The first client of Oracle was the CIA.
This mafia-like mugging of a successful business follows the previous attacks on Huawei. Rather than attempt to out-compete, the US used the cover of “security” to destroy Huawei’s market in America. It does not offer better products and services to the US.
Some say that the TikTok ban simply replicates the Chinese ban on Facebook and other US social media apps. This is not correct. These services are banned in China because they refuse to comply with Chinese law. Meanwhile, TikTok has bent over backwards to comply with all the demands made by US lawmakers. Additionally, China does not make the Facebook ban conditional upon Facebook being sold to a Chinese business. The Chinese ban on Facebook and others is not an exercise in mafia-style capitalism.
See also: Uniqlo owner Fast Retailing watching for China boycott after Xinjiang remarks
Despite repeated corrections, some US Senators and Congressmen at previous hearings seemed unable to understand that Tik Tok CEO Chew Shou Zi is a Singaporean and not from mainland China. This shows a dangerous tendency to lump together people based on deeply held racist perspectives.
The TikTok ban is indicative of significant policy changes that impact investment decisions. It means Singaporean companies headed by Singaporeans may face additional hurdles operating in the US as they can be misidentified as mainland Chinese. This will impact existing business operations and plans for expansion.
It means that business involvement with Chinese enterprises, joint-venture work and management of Chinese assets will be viewed less favourably by co-investors from the US. This reduces the range of capital resources and inhibits genuine cooperation and expansion.
See also: China resumes multiple-entry visas for Shenzhen to Hong Kong
For investors, it makes it more difficult to access the China market via third-party investment funds based in the US. This of course offers an expanded opportunity for others to fill this funds gap. The Singapore Exchange S68 lists seven ETFs on the Singapore-China ETF link, with the latest being the Phillip-China Universal MSCI China A 50 Connect ETF.
The TikTok ban is the latest in a thread of economic attacks on China that are also having a knock-on impact on the ability of businesses and investors to work with China. This increasingly hostile environment must be taken into account in making investment decisions.
Technical outlook of the Shanghai market
The Shanghai Index is again flirting with resistance near 3,080. The retreat last week was temporary and part of the expected consolidation behaviour near this level. The key feature of interest is the strength of the resistance level.
If the level is weak, the market will quickly punch through the level. If the level is well established, then it is more difficult for an uptrend to push through the level. Current index activity is moving above the resistance level, but this does not mean the level is weak.
At the 3,080 level, the feature has acted as a support level in the downtrend, after which it becomes a resistance level in a downtrend rebound. This is the second time that the 3,080 level has been tested as a resistance feature. The first time was in November 2023.
For more stories about where money flows, click here for Capital Section
This persistence suggests the index breakout will quickly exhaust itself and develop a new pullback that tests the 3,080 as a support feature. A successful test of this level as a support feature is a very bullish outcome. The Shanghai Index can move quickly when breakouts develop, so traders are prepared to act quickly as the index moves above 3,080.
This will be reflected in the short-term Guppy Multiple Moving Average (GMMA) indicator. The dip last week touched the lower edge of this group and then rebounded strongly. This returns the bulk of index activity to the upper edges of the short-term group of averages, and this suggests there is a higher probability that the uptrend will continue.
There was limited compression in the short-term group of averages on the pullback. This lack of compression supported the potential for a rebound and retest of resistance.
The behaviour of the long-term GMMA supported this analysis. The lack of compression in the long-term GMMA during the retreat shows investors are bullish and actively buying because they believe the retreat is a temporary blip in an otherwise strong uptrend.
The behaviour of the index around the 3,080 level is critical in understanding how the uptrend will continue. Currently, the balance of probability favours a renewed breakout above 3,080 with an upside target near 3,240. This target is calculated by taking the width of the trading band and projecting this upwards. This trading band calculation was successful in projecting the index recovery target at 2,920 and again at 3,080.
Daryl Guppy is an international financial technical analysis expert. He has provided weekly Shanghai Index analysis for mainland Chinese media for two decades. Guppy appears regularly on CNBC Asia and is known as “The Chart Man”. He is a former national board member of the Australia China Business Council
