Packed and ready to go. The Golden Week holiday begins on Oct 1 and is shaping to be a bumper period for domestic and international Chinese tourism. Friends and colleagues are variously embarking on travel to exotic Chinese tourist destinations, including the remote Western regions, and travel to international destinations as flight capacity opens up.
Tourism is good for business, and the domestic tourism structure provides clues to what Chinese tourists may seek from their international experiences. Constrained during the pandemic and the immediate post-Covid-19 period, Chinese tourists became more adventurous. Large-scale tourist groups were frowned upon, so the tour group industry took a step backwards.
We can expect to see the same impact with international travellers. The ability to organise group tours has been reinstated for many destinations, but this Golden Week will test just how vibrantly that industry sector has recovered.
Domestically, the Chinese tourist market became more adventurous both in terms of destination and how tourism was undertaken. Destinations broadened beyond the traditional cultural and historical site visits. These remained popular, and overcrowding remained a factor despite lingering concerns over Covid-19. Visiting the mountain peaks of Zhangjiajie was still a matter of jostling shoulder to shoulder to get a position for a good view.
The adventurous destinations included Xinjiang, Tibet and the Sichuan mountains, the Gansu deserts and the grasslands of Mongolia. These were more than just destinations. They required an entirely new level of equipment and outfitting. Travel was not by tourist bus but sport utility vehicles or luxury four-wheel drive vehicles. Sales of these types of vehicles increased dramatically.
So did sales of associated equipment, from footwear to tents. There was glamour camping, sometimes called glamping. This tourist segment is big business in Australia, with Australian Securities Exchange-listed companies, including ARB, solely focused on equipping and outfitting this market segment.
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It is difficult for foreign enterprises to participate in this domestic expansion of Chinese adventure tourism. After all, many ARB products are sourced from China, so Chinese tourists already have competitive suppliers. What is important for foreign tourism is to recognise that this spirit of adventure, this preference for individual and small group travel, is unlikely to be limited to domestic tourism in China.
Chinese tourists travelling overseas will want to duplicate their Chinese adventure approach to tourism. Equipping them with hire cars, arranging small-scale adventure treks in vehicles, and equipping them for a jungle rather than desert experience will offer new business activities and supply opportunities.
The key challenge for our tourism industry is catering to individual Chinese tourists. A desire to travel in large groups cannot be taken for granted. Tourism operators will benefit from offering more individual experiences and a different business model.
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Technical outlook for the Shanghai market
The spirit of adventure does not transfer to the Shanghai Index. The market is closed for a week, so investors cannot act on any external market shocks that develop during the holiday week.
The appetite for buying new positions declines as investors take a cautious approach. Once trading resumed after the holiday break, there was a higher probability of renewed investor interest and a market rally.
The long-term downtrend line continues to dominate the Shanghai Index. However, support is developing near the 3,080 level. This has been successfully tested in August and September. If support continues to hold, then this increases the probability of a successful breakout above the value of the downtrend line. Such a breakout is important, but it is very limited by the strong resistance near 3,160 and, above that, resistance near 3,220.
The downtrend is a sustained pattern, which makes it difficult to overcome with a quick rally quickly. A fast-moving breakout rally is a low probability. A sideways consolidation pattern using the 3,080 as a support floor is more likely to develop. This sideways pattern may be trapped in a sideways trading band between support near 3,080 and resistance near 3,160.
A sustainable long-term uptrend needs to move above the long-term downtrend line with a current value near 3,140 and a historical resistance level near 3,160.
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Investors will continue to watch for the development of a 1-2-3 Guppy Multiple Moving Average (GMMA) breakout pattern. This behaviour pattern shows investors gradually becoming convinced that the rallies created by traders are evidence of a trend change.
The 1-2-3 pattern starts with a failed rally where the short-term GMMA cannot move above the upper edge of the long-term GMMA, as we see on the current chart. The next rally in the pattern carries the short-term GMMA above the upper edge of the long-term GMMA before the rally again collapses.
This is also when the long-term GMMA begins to compress and change direction. Currently, there is no evidence of compression in the long-term GMMA. In this pattern of development, the second rally fails and then retreats.
The third stage of the 1-2-3 pattern is where the index retreat uses the lower edge of the long-term GMMA as a support feature. This third rally confirms the breakout and the beginning of a longer-term uptrend.
Two Additional features were developed. First, the short-term GMMA moves completely above the long-term GMMA. Second, the long-term GMMA turns upwards as it first compresses and then begins to expand.
The current rally and steady retreat are consistent with the first part of the 1-2-3 GMMA trend reversal pattern. The primary signal for the development of an uptrend is for the index to move above and stay above the value of the down-trend line.
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. The writer owns China stock and index ETFs
