When I speak at forums in China as a guest, I am very aware not to venture into “sensitive” areas or use “sensitive” terms. Every week, I provide market analysis to my Chinese partners in Beijing. In the video report, I track the performance of stock suggestions. When performance has been very good, I have used a picture showing investors rolling in money.
I stopped using this type of illustration several months ago, replacing them with a simple smiling emoji. The change is in response to the new “common prosperity” policy — President Xi Jinping’s campaign aimed at narrowing the widening wealth and income gaps in the country — and it meant that the use of an illustration showing investors rolling in money was now appropriate and insensitive.
Businesses, and those who invest in businesses in China, must also be sensitive to these broader policy changes in a way that does not apply in other international markets.
Domestic businesses in China have adapted to these changes. The Singles’ Day sale on Nov 11, for example, proceeded without its usual frenetic promotion. It did not stop sales from reaching levels that dwarf the Black Friday and Cyber Monday sales. For example, the sales by e-commerce giant JD.com were higher than it was in 2020, but the promotions this year were more subdued. Yes, high-end products were still featured, but it was done more discreetly than in previous years.
Shanghai-based market group China Skinny also recently reported that popular Chinese lifestyle platform Red has banned users from flaunting wealthy lifestyles. Red is widely acknowledged as the leading social network for emerging trends — particularly among women. It was infamous for its posts where users brandished expensive goods. But now, Red has flagged thousands posts it deemed as wealth-bragging behaviour. This impacts on the way these goods are consumed in China but will probably do little to dent demand.
Meanwhile, private social media — led by WeChat — are becoming more influential than traditional media. It duplicates the trend seen in Western markets. So, who listens to State media and the “common prosperity” policy? Surely, it makes business sense to follow the metrics set by social media when it comes to product placement and advertising?
But in China, everyone listens to State Media — from officials to consumers and those who manage the social media platforms. The subsequent changes in business approaches are not the result of a direct State directive. They are a recognition of which paths are easiest to follow.
Does “common prosperity” mean everyone will drop the Max Mara coats and start wearing Mao suits? In their report, China Skinny suggests that it is more likely we will see toneddowned displays of wealth.
Every foreign and domestic brand in China should consider the impact of the “common prosperity” policy. Investors need to check to see if the business models they have invested in are reacting to these changes, or just proceeding as normal. Failure to recognise the change may result in a significant decline in business.
The content of my product has not changed, but what I chose to highlight and how I highlight particular aspects has changed to reflect the emphasis of the “common prosperity” approach.
Technical outlook for the Shanghai market
The Shanghai Index has developed a sustained rally following the exhaustion dip that tested support near 3,450. The rally has quickly moved above the long-term group of moving averages.
This group of averages is a proxy for the way investors are thinking. Although the group dipped down, the level of compression remained tight. This suggested that investors were not strongly committed sellers and that they will quickly re-enter the market as buyers as the rally continues.
The previous tests of the lower edge of the long-term Guppy Multiple Moving Average (GMMA) and the failure to breakout suggested that investors were not yet convinced that the rally is a precursor to a trend change.
This situation has now changed with the fast move above the upper edge of the long-term GMMA. Investors will move quickly to follow the rally and will be enthusiastic buyers on any pullback. This will be evidenced by a rapid expansion in the long-term GMMA.
A trend change is confirmed by a strong rally. Proof comes when the index closes above the upper edge of the long-term GMMA. The initial breakout is limited by the long-term resistance near 3,580. This resistance level defined the upper edge of a broad trading band for most of this year. This is shown as line B. A sustained breakout above this level confirms the strength of the breakout and the establishment of a sustainable uptrend.
The immediate resistance level for this breakout is defined by the value of trend line A. This trend line starts in May and has acted both as a support feature and a resistance feature. It is a long-term influence on the market.
Investors have watched for the market to successfully test support near 3,450. This has been confirmed. They also watched for a move above the upper edge of the long-term GMMA before they considered entering the market as buyers. This has now developed. The long-term GMMA group of averages has turned up and is showing early evidence of expansion.
The rally will inevitably run out of steam. When it does, it is the extent of the pullback before a fresh rebound that will define the placement of a new uptrend line. Traders and investors will watch for the long-term resistance level near 3,580 to again act as a support feature for any retreat and provide a base for a rebound continuation of the uptrend.
Daryl Guppy is an international financial technical analysis expert and special consultant to Axicorp. 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 national board member of the Australia China Business Council. The writer owns China stock and index ETFs
Photo: Bloomberg
