China’s annual “two sessions” meeting sets the country’s economic policy agenda. More importantly, the meetings give clear indications of where new business opportunities are emerging. There is a direct link between government-initiated policies and business activities on the ground. Often these are areas that require foreign expertise to develop fully.
Understandably, it was the healthcare sector that rose to a new level of prominence and priority at the meetings. This came as no surprise, since its agenda was hijacked by Covid which exacerbated existing cracks in the system, halted development in new areas, and exposed new areas of weaknesses.
There were three main areas for policy improvement. Higher power and funding to address issues of effective healthcare service delivery will be allocated to local governments. The objective is to make hospitals more efficient with both technology and organisational changes.
The second area is policy improvement was an increased focus on improving basic healthcare for the elderly, children and patients, especially for cities on the eastern seaboard.
The third area was a commitment to undertake more work on vaccines and drugs to “guarantee the needs of the masses for medical treatment and protecting citizen’s safety and health”. This offers opportunities for cooperative research and development.
The second and third policy objectives offer a wide range of opportunities for businesses already involved in the health and aged care sectors. The best positioned to take advantage of the new funding models are those foreign companies that are already on the ground in China. In particular, there is more room for joint venture operations with newly-funded local governments that are under central policy direction to lift service delivery. Nevertheless, there are also opportunities for new players to enter this market, either as service suppliers or suppliers of equipment and expertise.
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Meanwhile, there was also a focus on the development of the green economy at the “two sessions”, not just because this is a high priority in China but because it is a new priority in Western economies. The meetings did not release any specific new policies for green economic development and the discussions were confined to general policy statements around goals and proposals, which were not unlike those previously stated. However, there is continued support for the R&D of clean coal technology and the development of new energy systems based on solar, hydrogen and other green sources.
These areas in healthcare and environmental protection of important ecosystems, water quality and reforestation offer plenty of scope for business engagement.
It would be unwise for smart businesses and investors to ignore them.
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Technical outlook of the Shanghai Composite Index
The Shanghai index has moved above the upper edge of the sideways trading band in a strong breakout. This has an upside target near 3,350. This is calculated by measuring the width of the trading band and projecting it upwards. This is called a measured move calculation.
The longer-term upside target is near 3,410 which is near to the market reached in July 2022. This is calculated by doubling the value of the width of the trading band. However, there is a high probability the market will consolidate near the first target level of 3,350. The previous period of sideways consolidation has provided a base for the strong breakout.
The index successfully used the lower edge of the long-term Guppy Multiple Moving Average (GMMA) as a support feature. The limited degree of compression in the long-term GMMA gave an early indication of bullish bias in the market. The strength of this bullish move could not be gauged until a successful breakout out above resistance near 3,280.
What we see now is a rapid expansion of the long-term group that confirms investors are aggressively entering the market as buyers. Investor activity is supporting the rally which is led by traders.
The breakout was also confirmed by the behaviour of the short-term GMMA. The short-term GMMA has compressed and crossed into the value of the long-term GMMA but it had not moved below the lower edge of the long-term GMMA. This was a confirmation of the bullish bias.
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It is also important to remember that the old uptrend line will now act as a resistance level. This will limit the extent of any fast breakout above resistance near 3,280. If the market moved exceptionally rapidly from the current level, the trend line resistance value should also be near the longer-term price projection target of 3,410.
This breakout is also consistent with the fan pattern (not shown on the chart). This pattern signals a long-term trend change. It is also consistent with the double-bottom pattern (also not shown on this chart). The depth of the double bottom pattern is measured, and then this value is projected upwards to give a very long-term target of 3,860.
In the short term, the index may reach the first resistance target and then retest the upper edge of the trading band as a support level before continuing with the uptrend. In the longer term, the breakout is a bullish indication of a longer-term uptrend.
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
