SINGAPORE (June 26): The International Monetary Fund reports that China will be one of few countries with economic growth in 2020. The US economy is anticipated to contract by about 6% and the eurozone by 7.5%. China's economic growth rests on domestic consumption and that includes the consumption of imported goods.
Post-2008 China came to the rescue of Western economies with a buying spree gobbling up depressed assets. COVID-19 has smashed company values, triggering fears across the United States, Europe and Australia of a new distressed asset buying spree. It’s a serious miscalculation, but many governments have introduced policies to protect their companies from Chinese takeovers.
Six months into the pandemic, the data confirms there are no signs of a Chinese outbound investment boom. Investment flows into China have increased every month since January. It is driven by consumer-focused investments and supported by policy liberalisation. Investment INTO China has surpassed investment OUT of China for the first time in a decade.
China's Covid recovery is supported by a boost in domestic spending and consumption. The official numbers show Chinese consumers are back spending in a big way. The JD 618 shopping festival sales grew by 33.6% from 2019 to US$38 billion ($xx billion). Tmall hit US$98.7 billion. Not surprisingly pet snacks, beauty and health check devices delivered high triple-digit growth according to Alibaba.
The other beneficiary was the Live-Streaming craze. JD.com has hosted more than 300,000 live streaming sessions. More than 300 celebrities and 600 brand executives joined live-streaming sessions on Alibaba’s Taobao Live, and an estimated 10,000 plus physical retail stores live-streamed to promote their products.
Live streaming is open to everyone. The marketing agency, China Skinny, reports that a farmer who goes by the name Northern Big Sis sits in her greenhouse taking giant bites of the raw vegetables she grows such as onions and garlic. A large number of farmers like Big Sis have all of a sudden become mini-celebrities as the focus shifts to food safety and the health benefits of food in the Covid environment.
The Covid-19 crisis has disrupted supply chains. Not everyone can be a Northern Big Sis so many supplies are turning to blockchain solutions to rebuild disrupted networks by providing trading partners and consumers with trusted and secured data on goods and transactions.
The Chinese demand for lactoferrin and whey products increased dramatically due to the claimed immunity boosting qualities. There is no firm evidence for this, but exports of Australian whey protein milk powder to China tripled in March, adding value to Australian exporters like A2 Milk. With a 180% difference between the Australian and Chinese shelf prices, this suggests a high level of demand and signals opportunities in European milk exporters.
Although we are more accustomed to assessing the impact of Chinese tourists as international travellers, investors cannot ignore the domestic Chinese tourism market. As lock down restrictions are lifted the travel industry is applying innovative recovery measures. China Eastern Airlines offered six months of unlimited domestic travel for US$470, with bookings valid until the end of 2020. Demand was so heavy that the mobile app crashed repeatedly when the promotional package was released. Tapping into this investment market is easier than ever and next week we look at some of the options.
Technical outlook for the Shanghai market
The Shanghai index uptrend is testing resistance near 2,980. This is a strong historical resistance level so there is a high probability the index will oscillate around this resistance value with small breakouts above the level and some retreats below this level.
There are three key features to note when considering the trend.
The first and second features are the uptrend lines A and B. The third feature is the strong trend support shown by the long-term group of averages in the Guppy Multiple Moving Average indicator.
Trend line A originally was used as a support level and it defined the breakout uptrend from the low near 2702 in March. After the collapse of that initial uptrend on May 22 the trend line A acted as a resistance level. This is not an exact resistance barrier and the index clustered around this resistance feature as it moves towards the long-term historical resistance near 2,980.
Trend line A will act as a resistance feature when the index finally breaks out above the horizontal resistance near 2,890. Currently this gives an upside target near 3,000. In a very strong breakout, the index may move above trend line A and use this as a support feature. However, the trend behaviour is steady so there is more probability the index will use trend line A as a resistance feature.
Trend line B defines the longer-term uptrend using the pullback lows in May and again in June. This line is important because it helps to define the index volatility behaviour. The index can develop rally and retreat behaviour between trend line A and B and still remain in a long-term uptrend. The important feature is that the degree of volatility is slowly increasing. This is measured by the increasing distance between trend line A and B as they diverge.
The value of the line is also near to the long term GMMA group of averages. The steady separation in this group of averages is bullish. This shows investors are increasingly confident in the uptrend continuation. A steady degree of separation has developed between the long term and short term GMMA averages and this is usually associated with a stable trend.
A retreat from 2,980 retreat has two potential support features.
The first support area is the value of the long term GMMA currently near 2,910. A fall below has support from uptrend line B, currently near 2,900.
The divergence in the two trend lines suggests the index could move more than 80 points to the lower trend line B and still remain in a long-term 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 more than a decade. 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.
