Current US President Joe Biden may not be as erratic as former President Trump, but he is pursuing some of the former’s policies, particularly those in relation to China.
His idea of strategic competition with China is not market place competition, but a continuation of the Mafia- style capitalism favoured by Trump.
This policy approach involves the political equivalent of stand-over tactics with forced closures, destruction of investment listings and outright bans.
TikTok and Huawei and the best known examples, but there are many more in the wings.
China Mobile is the latest victim of the destruction of investment listings. China’s three state-owned carriers — China Mobile, China Telecom and China Unicom — all face delisting from the New York Stock Exchange (NYSE) following executive orders issued by Trump last November.
Now, Biden has chosen not to overturn these executive orders.
These listings are a loss for the NYSE but offer investors a new opportunity in Hong Kong and Shanghai markets. After losing its appeal against the NYSE decision to delist its shares, China Mobile — the country’s largest wireless telecom operator — is planning a share offering on the Shanghai Stock Exchange.
The filing with the Hong Kong Stock Exchange (HKSE) shows the company intends to sell up to 964.8 million shares. This is around 4.5% of its total issued float and will dilute its existing Hong Kong listing which has been trading around HK$48.80 ($8.38).
The filing states that this offering may be expanded by 15% through an over-allotment option.
It is not just China Mobile that is impacted.
Two months previously, China Telecom also announced plans for a Shanghai offering. They, along with China Unicom, failed in their appeals to reverse the NYSE delisting decision.
The telecom companies are just a few examples, but they point the way to a broader situation that has some contradictory features.
The desire by Chinese companies to list in the US continues, despite the regulatory risks.
However, it is no accident that Chinese companies listed in the US which also pose a threat to US business interests are treated with delisting requests.
This is the foundation of Mafia-capitalism where competition is not out-competed, but rather snuffed out. The particular consequence of interest to investors outside of the US is the way these capital listings are transferred to Shanghai and Hong Kong.
The relocation of these globally competitive business to new China listings brings with it a reallocation of capital and new investment opportunities. It also has a generally bullish impact on the hosting markets.
This is a positive for the HKSE, Shanghai and Shenzhen stock exchanges and their relevant indexes.
This rising tide of inflowing capital will also lift all other boats as these exchanges grow and further attract global listings.
Growth feeds on itself, so expanding indexes attract more international funds into exchange-traded funds (ETFs) and managed fund allocations.
In short, this relocation is bullish for these markets and investors may choose to position themselves in anticipation of this shift in capital.
The opportunities exist beyond just tapping into the expanded listings of these Chinese telecoms.
Technical outlook for the Shanghai market
The Shanghai Index has broken decisively above the resistance level near 3,450. This level also formed the top of a long-term upwards sloping triangle pattern that commenced in early March.
The closes above the resistance level near 3,450 signalled a high probability trend breakout.
Following recent activity the position of the uptrend line is adjusted. The trend line is 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.
The index breakout occurs near the apex or tip of the upwards sloping triangle. Breakouts at this point in the pattern development are often weaker than breakouts that take place in the middle third of the patterns.
Traders used caution but quickly joined the breakout as the index closed above the resistance level. This suggests the market may move more slowly towards the chart pattern upside targets.
The breakout has a higher probability of developing a rally and retreat pattern rather than a fast move to the upside target level.
The 3,585 level is a useful theoretical target because it does not match any previous support or resistance levels.
In a bullish environment, it is not unusual for the new market uptrend to exceed the chart pattern target and reach the next resistance level.
With the Shanghai Index, this is near 3,620.
The Guppy Multiple Moving Average (GMMA) indicator is used to assess the way the breakout trend may develop in the future. The long-term group of averages quickly compressed and turned upwards. This confirms investors are not strongly bearish.
However, this group of averages must develop good separation before we can be confident that investors are fully supporting the trend breakout.
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.
The short-term group of GMMA averages provides information about traders. The short-term GMMA has moved completely above the upper edge of the long-term GMMA.
This is a bullish confirmation signal. Trend sustainability is shown when the index retreats towards support and then rebounds.
This behaviour will assist in plotting the correct position of a new uptrend line which can be used to define the developing trend.
GMMA analysis helps us to understand the trend. Trading band analysis also helps establish trend targets.
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.
