The Chinese policy forum, the Fifth Plenum, wrapped up last week. Details are sketchy but they laid out the framework for the 14th five-year plan. This is not a Soviet-style fiveyear plan. This is a reliable guide to Chinese development priorities over the next five years. It also points the way to investment opportunities and new business developments.
As a reminder, here are some results from the 13th five-year plan — 55 million people were lifted out of poverty while annual crop production reached around 500 kg per person. Meanwhile, the urbanisation rate reached over 60% and around 1.3 billion people were covered by basic health insurance and this provided support during the Covid-19 crises. Finally, over one billion people are covered by basic pension schemes.
Many in the West will ignore the Fifth Plenum announcements, only to be surprised as China again leapfrogs development in critical areas. Investors cannot afford to ignore the changes in emphasis and the new development areas foreshadowed in the first outlines delivered after the plenum.
There are four key areas of interest, the first being agricultural security. This is an increase in agricultural efficiency and self-sufficiency. For investors this means a shift away from suppliers of agricultural products into China. That is bad news for investments into Australian agriculture.
Instead, the opportunities will come from agricultural development within China, first through the import of expertise and later through the modernisation and growth of an agricultural commodity sector that more closely resembles the logistics chains now seen in Australia, Canada and the US.
Early identification of these dairy conglomerates, the vertically integrated grain growing and distribution companies, and the aggregate broad acre farming companies will provide investors with a first mover advantage.
The second covers seven sub-areas: 5G infrastructure, ultra-high vacuum (UHV), inter-city high speed rail networks, renewable energy charging stations, big data centres, artificial intelligence and the Industrial Internet of Things (IIoT).
Although investors’ focus will be in Shenzhen, it is also wise to consider the innovation centres established within the new regional development architecture. The Chengdu-Chongqing Twin city economic circle supports industrial modernisation and the Belt and Road Initiative.
The third area aims to achieve a 20% share of non fossil energy in national energy consumption by 2030. This makes wind and solar power key growth industries. There is little that Western industry can contribute to these areas, but the expansion of these targets offers a concentration of investment opportunities.
These environmental goals also include a greater focus on water and soil pollution management. Investors will consider how foreign expertise can assist in achieving these targets.
The fourth area of interest to investors is the acknowledgement of the unique demands imposed by an aged society. By 2022, China will become a deeply aged society with 14% of the total population aged 65 and over. A decade later, China will become a super-aged society with over 20% of the total population aged 65 and over. This process took 28 years for France, and 36 years for Germany.
Quality health care, support for the aged, and specific consumer products and services will see increased demand. Some Western companies are well positioned to offer solutions, but this must be balanced against higher Chinese expectations around care standards.
Investors will watch for partnership opportunities that match Western experience with Chinese service delivery.
Technical outlook for the Shanghai market
The Shanghai index has stopped sliding down the value of trend line B and has rebounded from the support area near 3,220. The rebound from the support level is a bullish signal because it suggests the downtrend pressure has been arrested.
However, there is no strong evidence that a new sustainable up trend is developing. Instead the recent index activity is part of a small down sloping trading channel. The upper edge of the channel is defined by trend line C. The index must move above this trend line before a bullish rebound rally is confirmed. If this is not possible then the index will retest the support near 3,220.
This down sloping trend channel is useful because it allows the trader to plot an upside target for a breakout. The width of the trading channel is measured, and the value is projected upwards. This gives a current upside target near 3,340. This is near to the midpoint of the very broad trading and that is created by support near 3,220 and resistance near 3,340.
This projected mid-trading band resistance level suggests there is an increased probability that the Shanghai Index will continue to trade in the lower section of this larger trading band. The relationship on the Guppy Multiple Moving Average (GMMA) indicator also suggests that a prolonged sideways movement is a high probability.
The long-term GMMA group of averages indicates how investors are thinking about the market. Wide separation shows they strongly support the current market trend. Narrow separation shows weak support for any trend. Currently, the long-term GMMA is compressed and moving sideways so this confirms the high probability of rally and retreat activity confined to the lower half of the broad trading band.
The short-term group of averages is oscillating around the long-term group of averages. The breakouts and the retreats are not very strong, and this confirms the market lacks direction.
The first indication of a new uptrend appears when the index is able to move above the mis point of the trading band near 3,340. This will be confirmed with the long-term GMMA turning upwards and beginning to expand. This would be evidence of growing investor support for the new trend. The upside target for this breakout is the resistance level near 3,440.
The first indication of a new downtrend is when the index moves below support near 3,220. This would be confirmed by the long-term GMMA turning downwards and beginning to expand. Using the same trading band calculation method, this sets a downside target near 2,980.
Trades watch for support to hold and for a new rebound rally taking the index towards the previous rally high near 3,358.
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.
