So, your business discovered e-commerce during the Covid-19 lockdown and you are now ready to take on China’s market?
Not so fast.
The Covid-19 lockdowns gave a tremendous boost to the application of e-commerce replacing physical storefronts. However, the reach of this e-commerce experience was mainly domestic.
These were traditional customers blocked from physical access and they had no choice but to turn to the virtual replacement.
Their underlying shopping habits did not change. What changed was the way they shopped and purchased
their goods and services.
On the one hand that was a great boost of economic productivity because it forced lagging business into the world of e-commerce.
On the other hand, it also spurred delusions of grandeur.
It is true that it is just as easy to use e-commerce to sell to a consumer in the next suburb as it is to sell to a customer in the next country or to distant countries.
However, some services which re- quire no physical delivery are ideally suited to this type of e-commerce and most of them were already taking advantage of this prior to the Covid-19 outbreak.
Think of the difference between shopping on Amazon and buying an eBook compared with going down to your local bookshop.
Some even have delusions of grandeur built around the expanding, dynamic China market.
If we can sell to Pasir Ris and Jurong, then we can sell to Shanghai because China e-commerce is much the same as what we are now using.
But here is the dream buster. China’s e-commerce platforms — think Alibaba’s Taobao — are not
like Amazon.
The Chinese consumer lives in a world where the internet is literally a web of life. This is more than being wedded to a smartphone. The difference is the way the smart phone applications and services are integrated into all aspects of life.
The Chinese consumer world is also worried about fakes and product substitutions and this adds an extra layer to the service requirements expected by Chinese consumers.
One Singapore-based e-commerce seller sold bird’s nest to Chinese customers. Prior to shipping each consignment, she photographed the product, the box and the wrapping so the customer could verify that the product they received was exactly the same as the product they had been sent.
That was an old method. Now, sellers are using tamper-proof blockchain certification on products. If you do not implement this technology in your China e-commerce store, then your credibility goes down along with customer orders.
Other sellers thrive by adding extra services as Chinese e-commerce consumers are some of the most demanding in the world.
One merchant says that around 30% of all of their sales are completed through assisted shopping by a customer service agent. The salesperson physically talks to the consumer to get the sale.
The conversion rates are really high and counts towards your Tmall conversion statistics.
Around 80% of consumers ask for proof that what you are selling is real. Covid-19 may have given a boost to domestic e-commerce sales but it is a very different environment when entering the more sophisticated Chinese e-commerce market.
Technical outlook for the Shanghai market
The Shanghai Index is testing the value of the uptrend line, dropping below the line but closing above the line.
A rebound from this level will further confirm the importance of the trend line. A close below this trend line will signal a retest of support near 3,360. A successful rebound from the trend line and a close above the resistance level near 3,450 will signal a high probability trend breakout.
Following the May 11 drop, the position of the trend line is adjusted. The trend line is also placed along four major anchor points.
This combination of resistance and the upsloping trend line forms an upsloping triangle pattern.
The base of the pattern is 125 index points and was created around March 9. Taking this value and projecting it above 3,460 gives a target near 3,585.
This is a useful theoretical target but it is theoretical because it does not match any previous support resistance levels. In this bullish situation it is not unusual for the market rise to exceed the chart pattern target and reach the next resistance level. With the Shanghai Index this is near 3,620.
The triangle pattern is strong, but the index is nearing the apex of the triangle pattern and the index is not showing good strength.
Traders use caution but will quickly join the breakout if the index can close above the resistance level.
The Guppy Multiple Moving Average (GMMA) indicator is used to assess the way the breakout trend may develop in the future following the current index rebound from the uptrend line.
The continued compression in the long-term group of averages group con- firms investors are not strongly bearish.
The compression suggests investors are waiting for a strong lead from traders and proof the breakout can remain above 3,460 before they enter the market again as strong buyers.
This, combined with other bullish features, suggests the potential for a strongly supported breakout trend.
The short-term group of GMMA averages provides information about traders. The index twice tested the lower edge of the long-term GMMA. However, the short-term GMMA still remained below the long-term GMMA when the market dipped during the week.
This shows traders are growing more confident. The confirmation signal is when the short-term GMMA moves above the long-term GMMA. GMMA analysis also helps us to understand the trend. Trading band analysis helps establish trend targets.
The long-term trading band dominated in the second half of 2020.
The width of the broad trading band gives an upside target near 3,630. The short-term breakout target is near 3,540.
Daryl Guppy is an international finan-cial 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.
