The increase in far-reaching unilateral sanctions means that the law of another country applies to you. In some cases, we may agree that using sanctions is appropriate, but the increasing generalised dragnet reach and use of sanctions is not appropriate. Businesses can unwittingly be caught in this net unexpectedly, adding a new level of risk to international business opportunities.
Two examples illustrate the reach of these US-originated nets and the way they inhibit what we would consider a normal business with China. The United Arab Emirates (UAE) had plans to send a UAEdeveloped moon rover with China’s Chang’e 7 moon mission in 2026. The collaboration would have seen the UAE’s Rashid 2 rover delivered to the moon’s surface in the unmanned mission to the lunar south pole, intended to lay the foundations for an international research station.
Revising the 1976 International Traffic in Arms Regulations (ITAR) has dashed these plans. This law prohibits the most common USbuilt widgets from being launched aboard Chinese rockets.
The unintended consequence is that ITAR restrictions have led to China developing its technologies. More ITAR-free products will be developed in Europe and the UAE — and, ultimately, the rest of the world — will depend less on buying US space products.
The second example comes from the expanded remit of the Committee on Foreign Investment in the United States (CFIUS). This inter-agency committee reviews the national security implications of foreign investments in US companies or operations using classified information from the American intelligence community.
Established in 1975, its remit has expanded in recent years. CFIUS’s primary interest is that technology or funds from an acquired US business might be transferred to a sanctioned country.
See also: China tightens securities lending rule to support stock market
As the geopolitical situation evolves, companies should be prepared for greater scrutiny from CFIUS. Particularly vulnerable are firms with decades of investment, supply chains, joint ventures and other business connections in China. They must be able to answer CFIUS’s questions about whether Chinese employees or business partners have access to their technology or whether their cyber security is weak.
One potential CFIUS interest would be around companies heavily dependent on China as a customer. Do the Chinese have leverage over you? Can they use that leverage for nefarious purposes? That raises concerns for many companies that have joint ventures in China and share a certain level of technology.
This also impacts the development of new joint ventures as the Chinese economy expands again. Businesses need to be aware of this new suite of risks.
See also: Eight reasons why I am still in favour of China stocks
Technical outlook for the Shanghai market
The retreat in the Shanghai Index overshot historical support near 3,220 before clawing its way back. This was not a strong rebound, as the index has fallen below 3,220.
The Guppy Multiple Moving Average (GMMA) indicators confirm this level would not hold. The index pressure will move below 3,220 towards a test of the next support level near 3,150. This weak consolidation level has not been a significant or strong support level in the past.
This area is where traders will look for consolidation in the market before it develops a base for a rally rebound. The slowdown in the momentum of the current index retreat suggests 3,150 may act as a support area. Any rebound from this will be limited by resistance near 3,220.
Long-term trading bands dominate the Shanghai Index, setting the limits for each leg of the rally or retreat. We start with the upper trading band. The lower edge of the upper trading band is near 3,220. The upper edge of the band is near 3,280. The width of the trading band is measured, and this value is projected upwards in a breakout to set the first target. This target was achieved in May, and the index moved higher.
However, this breakout was unsustainable. These two trading bands provide a wide movement band for the index between support near 3,220 and resistance near 3,350. The middle area of the broad trading band is near 3,280, which will be a significant resistance area for any long-term uptrend recovery.
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The width of the trading band is also used to set the next downside target below 3,220 with a target near 3,150. These target projections based on the width of the trading band provide a series of potential index targets. Still, they do not indicate how the index will reach these targets.
The long-term GMMA was turned down and compressed. This confirms that investors have become sellers. Further confirmation is this selling pressure comes when the long-term GMMA begins to expand.
Meanwhile, the short-term GMMA is widely separated and below the long-term GMMA’s lower edge. This shows traders are strong sellers. The index dip will test support near 3,150. A successful test of this level will build a base for a rally rebound and the development of a new 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 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
