Businesses need to be alert to the rapid deterioration in the US and China relations because Singapore and others cannot ignore this climate change.
The landmark meeting in Anchorage, Alaska on March 18 has been followed by even more belligerent statements from US President Joe Biden.
He declared that China has “an overall goal to become the leading country in the world, the wealthiest country in the world and the most powerful country in the world. That’s not going to happen on my watch”.
This approach is different to that taken by former President Donald Trump.
He was erratic and increasingly friendless as he alienated former allies. Trump also focussed on foreign affairs as if it was the same as buying and selling hotels.
Biden has lifted this China confrontation above just trade and made it into an ideological confrontation which harks, incorrectly, back to the Cold War.
As much as Biden would like to pretend otherwise, this new path inevitably contains a racist element and it will trigger a reaction.
This is not the Cold War redux so the survival mechanism used by industry and business during The First Cold War cannot be applied.
The difference between then and now is this: During the First Cold War, no Western consumer ever considered buying a Soviet made refriger- ator or air conditioner in preference to one made in IS or Japan.
The First Cold War was an ideological struggle to contain an expansionist state which wished to impose its system of Government on others.
Today, consumers are just as likely to buy an air conditioner made by Haier as they are to buy one made in the US or Korea or Japan.
The US wants to dominate this competitive consumer space by fair means or foul.
The foul means include sanctions, product bans, industry specific blockades and disruptions in what can be called Mafia-style capitalism.
It started with Trump with the Huawei and Tik Tok bans.
Biden has clearly indicated he continues to travel down this path to ensure American dominance.
That is all very bad for companies in Singapore that work in or import goods from China.
Australia is a much more willing follower of the US, but we can expect to see the same pressures being applied to other countries in our region.
The Australian Treasurer told 150 business leaders they should support the Government’s China policy because not to do so was against Australia’s interests.
Those winds will inevitably flow to Asia in the areas that America unilaterally declares to be its area of interest.
Singapore, with its network of trade links, sits at the centre of that area of interest.
Businesses will need to consider how it will handle this pressure applied directly and indirectly. Investors would also do well to consider how they expect it will impact on listed companies engaged in doing business on the ground in China.
This will also impact on companies with Chinese investors as shareholders, partners or joint venture arrangements.
It is too soon to identify the exact impact, but prudent analysis cannot ignore the cold winds blowing in from Alaska.
Technical outlook for the Shanghai market
The long-term resistance feature on the Shanghai Index near 3,450 sits at the upper edge of the long-term trading band that dominated the Shanghai Index behaviour for the second half of 2020.
This resistance feature continues to offer a formidable barrier to a resumption of the long-term uptrend.
The Index has made several attempts to break out above this level but each attempt has failed.
There is a high probability that the index will continue to develop a consolidation pattern below the resistance level near 3,450.
This pattern includes weak and limited breakouts above 3,450.
The failure to break above 3,450 suggests a return to the long-term oscillation behaviour of the index that was also a characteristic of the second half of 2020.
In this period the index movement was confined within the broad trading band that dominated the Shanghai index from July 2020 until January 2021.
The first feature of this trading band is the strong resistance level near 3,450. The index is regularly testing this level as resistance following the rebound in the last week.
The second feature in the trading band is the support level near 3,360. This level has been successfully tested following the strong retreat starting February 2021. The rally rebound developed from this level but 3,360 is again under test.
The third feature of the trading band is the strong long-term support level near 3,240. This acted as a major support level during the last six months of 2020.
This represents an extreme downside target for the current index activity. The fourth feature is the midpoint of this broad trading band located near 3,360.
The index has oscillated around this level during the last six months of 2020.
The market was bullish when it remained between 3,360 and 3,450. The index was bearish when it was between 3,240 and 3,360.
Current rally and retreat activity are in the upper half of the broad trading band and this is bullish even though no strong breakout trend behaviour has developed.
A breakout above 3,450 has an upside target near 3,540. A downside breakout has a target near 3,240.
It is clear that the longer-term uptrend which rested on broad separation in the long-term group of averages has been broken.
Investors have become significant sellers as shown by the compression in the long-term Guppy Multiple Moving Average (GMMA).
Any rally rebounds in the near future will continue to be limited by strong resistance near 3,450.
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.
