A new stock exchange has been announced for Beijing.
Really? Why would you bother to do this? Does it have anything to do with China moving towards redistributing wealth from the nation’s super-rich in order to strive for common prosperity? Probably not.
If you are thinking remains moored in the 20th century, then you could say the Beijing stock exchange is well situated geographically to serve service-based innovative companies in the Beijing, Tianjin and Hebei areas. Chinese capital Beijing has the highest level of digital economy penetration in China. The digital giants — Meituan, DiDi, Bytedance and JD — are all also headquartered in Beijing.
This announcement comes as more digital companies are moving to the domestic stock exchanges for listing opportunities.
Some of the private companies will welcome a mixed-ownership structure with local state assets. It is said this makes Beijing an ideal place for listings because it is the centre of government.
But what does it mean in reality for markets and for investors?
Not much: An investor or trader based in Singapore has instant access to the Singaporean market. On the same trading screen, I also have access to Shanghai and Shenzhen exchanges, as well as the Hong Kong, Australian and Malaysian stock exchanges. I also have direct access to the Nasdaq, the New York and the London stock exchanges.
In a digital market, the physical location of the exchange floor is pretty much irrelevant. My buy or sell mouse-click instruction flows just as quickly to the Singapore matching and settlement board as it does to the Nasdaq exchange platform.
With the right choice of broker, all of these exchanges are instantly available and trades can be executed just as quickly on any chosen exchange be it domestic or international.
So, from this perspective a new stock exchange in Beijing is not particularly important. As long as it is linked with trading platforms in the same way as other Chinese and international exchanges then for all intents and purposes it is just a single global market.
To be sure, there are individual irritations in trade settlement procedures and account certification but none of these interrupt the ability to instantly execute orders on these exchanges.
The creation of a third stock exchange has more than symbolic value if the listing requirements are different to those on the Shanghai and Shenzhen exchanges. This is often the case with tech boards, with STAR and GEM boards which have less demanding listing rules in terms of capital and performance. That is why the Nasdaq became the home to internet start-ups.
In this sense, a new Beijing board may deliver some significant differences in the types of listings, including a 30% intra day limit cap and the potential for intra-day and short trading.
The general discussion suggests the Beijing board will favour SMEs but the detail around listing requirements remains unclear.
The danger, as with all of these start-up boards, is that after the initial surge of capital and interest, the boards sink into illiquid markets and from there into irrelevance.
Maintaining liquidity will be the challenge for the new Beijing board. For investors, the Beijing board offers just one more avenue for trade execution.
Technical outlook for the Shanghai market
The Shanghai index breakout rally has rocketed above two resistance features. The immediate upside target is near 3,710. This is calculated by projecting the width of the upper section of the long-term trading band. Projecting the full width of the trading band gives a target near 3,830.
What makes this breakout particularly important is the confluence of support and resistance features shown by the arrow. This is unusual.
First is the breakout above the long-term uptrend line A. This acted as a support feature from March until July. Then, it acted as a resistance feature. The breakout above this resistance feature on Sept 2 is bullish.
The second feature is the breakout above the horizontal resistance level shown as line B. The breakout is even more bullish because it was also a breakout above the upper edge of the trading band near 3,580. This trading band had defined trading activity since March.
The third feature is the new uptrend line C. This defines the rally up move and traders will watch for this to act as the first support level when the market retreats.
The unusual feature is the way trend line B and C intersect at the same point with resistance line B. This confluence of chart factors potentially signals a significant change in the trend and a re-set of market behaviour.
It provides three powerful support features for any market retracement. The first is the value of trendline C, followed by the value of trend line A. The final support feature is the resistance level near 3,580 which now has a support function.
The trading band projections of breakout targets are a guide to how future index activity may develop. Trend lines A and C will be used to manage the trend development as the index moves towards this potential target.
Analysis using the Guppy Multiple Moving Average (GMMA) indicator confirms the rally breakout is quickly attracting support from longerterm investors.
The long-term group of GMMA averages has quickly compressed and turned upwards. A fast expansion of this group will indicate strong investor support for the breakout and confirm a sustainable uptrend.
Fast rally breakouts inevitably lose momentum and develop a retreat. It is the nature of the retreat that provides information about the sustainability of the emerging uptrend.
The cluster of support features suggest any retreat will be minor and potentially confirm the validity of trend line C. Traders are alert for consolidation around the first upside target near 3,710.
The monthly chart shows the next historical resistance level is near 4600 and this is a long-term upside target.
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
