A little noticed decision in Australia slipped under the investment radar last week. However, its ripples are something that will surely impact heavily on Singaporean investment Down Under.
That decision was about a China State Construction Engineering Corporation bid for South African-owned, Australian construction firm Probuild.
There are several reasons why this decision will have an impact. The first is that this was not a decision made by Australia’s Foreign Investment Review Board (FIRB).
Rather, the application was withdrawn because the Australian Department of the Treasury advised Probuild that they would not be successful in getting FIRB approval.
This sets a dangerous precedent because it shows that a ministerial decision can override the formal FIRB approval process.
Why waste eight months in prolonged submissions if the Treasurer can override the formal process? This lifts sovereign risk to new highs.
The second feature is the reason for the withdrawal of the takeover bid.
The offer was withdrawn by Probuild’s South African owners because they were advised by Australian Treasurer Josh Frydenberg that the FIRB would declare the transaction a risk to national security and contrary to Australia’s interest.
These provisions cast a very wide net and it captures many types of activities which — at first glance — would not be considered as a national security risk or against Australia’s national interest.
The Treasurer has hinted that Probuild is not the first proposal he has knocked back. Others apparently include proposed foreign investment in construction and technology.
This follows the Treasurer’s rejection of Chinese firm Mengniu Dairy’s proposed US$600 million ($795.45 million) acquisition of Lion Dairy & Drinks in Australia last year.
This, again, was because it was said to be against Australia’s national interests.
It was also seen as an arbitrary decision because the investment had been approved by all the relevant Australian regulatory authorities.
In contrast, Spanish multinational energy company Iberdrola was given rapid approval for the takeover of Australia’s Infigen Energy.
So here is the key takeaway as it impacts on proposed and current foreign investment from Singapore into Australia.
If the investment proposal includes mainland China interests on the company register, then the Probuild decision suggests there is a lower probability of success when compared with proposals that include Western interests.
It also suggests a higher probability of direct intervention by the Treasurer to make a political decision that overrides or supplants the deliberations of the FIRB.
The areas that constitute a security risk or are contrary to Australia’s interest are ill-defined and can be easily stretched to include agricultural, mineral resources, infrastructure and — as Probuild shows — construction industries.
The Probuild decision also shows that Singaporean investors and businesses are faced with a new set of China-specific risks when done in Australia.
Technical outlook for the Shanghai market
The Shanghai Index has paused and consolidated near the target level of 3,620. The index has also moved below the short-term trend line.
This indicates a temporary pause in the rally activity as the index conciliates and tests recent support levels.
The two support features are the value of the first breakout projection level and the lower edge of the short-term group of moving averages in the Guppy Multiple Moving Average (GMMA) indicator.
The first upside target was 3,540 and is calculated by measuring the width of the upper section of the trading band and projecting this value upwards.
The second target takes this value and projects it above 3,540 to give a target of 3,620.
These are short-term targets. Consolidation between these two target projection lines is expected.
The position of the short-term uptrend line A is adjusted to include the recent price activity in the consolidation area. This trend line A is a guide to the potential index activity. It is useful for providing an indication of how the trend is developing.
The full trend analysis uses the GMMA relationships to confirm trend strength and behaviour. The lower edge of the long term group of moving averages in the GMMA indicator is almost above the 3,450 support level.
The upper edge of the long-term GMMA has moved above the 3,450 resistance level. The continued wide separation shows strong investor support for the uptrend.
The short-term GMMA shows traders strongly support the trend continuation.
Although the index has pulled back to the short-term, the GMMA remained well separated. This shows strong trader support for the trend and the consolidation is seen as a buying opportunity.
If traders took the consolidation as a selling signal, then the shortterm GMMA would show more rapid compression.
A characteristic of the Shanghai market is fast rallies followed by a consolidation. This consolidation continued this week giving investors the opportunity to join the market around 3,540.
The consolidation behaviour provides a platform for the next leg of a breakout rally above 3,620.
The behaviour confirms there is a good probability the market will resume the rally and move quickly to 3,690 prior to the Spring Festival holiday break.
A fall below 3,540 has support near 3,500 at the upper edge of the long-term GMMA.
The next support level is near 3,540. However, the consolidation and GMMA behaviour suggest this is a pause before a resumption of the uptrend.
