The triumphalism of the Group of Seven (G7) meeting — held last week in southwestern UK — may be misplaced, coming from economies that represent both the Anglosphere and just 40% of world GDP.
However, the hardening of an anti-China stance has significant implications for investors, and not just from the Western perspective.
On June 13, G7 leaders — amongst other things — called out over human rights in Xinjiang while demanding a full and thorough investigation of the origins of the Covid-19 virus in China.
In response to US sanction activity, China has introduced an anti-foreign sanctions draft law which “is expected to provide strong legal support and guarantee for the country against the unilateral and discriminatory measures imposed by foreign countries”.
It is a little difficult to see just how this might be applied and in what circumstances. However, it introduces an extra layer of jeopardy for both those doing business and investing in China.
Now, engagement with China must not only consider US and Western sanction activity — but also China’s counter sanction activity.
This creates new vectors of risk for those who have been attempting to delicately balance compliance requirements under conflicting bodies of law.
The law includes sanctions against related persons: This could mean a spouse, a direct relative, a managerial member or actual control person or organisations that are related to the person in the Anti-Sanction List. It also affects organisations controlled or managed by the persons listed in the Anti-Sanction List.
Evidently, it casts a wide net that may capture what would be considered normal business activity in China.
Remember, this is a direct response to the Huawei-style bans.
The measures include visa refusal, prohibition from entry into China, cancellation of visa or even deportation.
The law also enables the seizure or freezing of assets, the prohibition of transactions or other necessary measures. Unlike Western sanctions, the decisions from the Chinese government authorities are final and cannot be appealed.
This potentially impact on existing business arrangements must be considered as a new investment risk.
The anti-China aspects of the G7 statements represent a rather desperate attempt by G7 countries to counter the rise of China and a belated recognition that Chinese advances across a range of frontier technology fields is significant.
This is not a repurposed copy-cat progress but genuine advances in technology that in a competitive — rather than cooperative environment —puts China well ahead.
There are two examples: First is the astounding selfie taken by the Chinese probe on the surface of Mars last month.
What makes this photo special is that it was taken from a distance using a wireless camera that was placed on the surface by the Zhurong rover.
It might look tacky as the millions of selfies that populate social media, but the technology required to take such a picture on Mars is way beyond what the Americans have been able to demonstrate.
The second example is the use of ion drives on the Tiangong space station, as reported earlier this month.
Powered by four ion thrusters that use electricity to accelerate ions as a form of propulsion, the core module is set to become the first crewed vessel powered by ion drives for the mission to Mars.
Ion drives are orders of magnitude more efficient compared to chemical propulsion. To keep the International Space Station in orbit for a year, the thrusters consume four tons of rocket fuel.
With ion thrusters, it needs just 400 kilograms to stay in orbit for the same amount of time.
This is technology that could vastly cut down the time it takes to travel to Mars and greatly reduce the amount of fuel needed.
This represents an investment opportunity cost, especially if significant technological advancements cannot be incorporated into new business investments because of Western-led sanction activity.
Technical outlook for the Shanghai market
The Shanghai Index dropped below the support level near 3,580.
This was also a move below the recent short-term uptrend line A. The index fall is retesting the support area near the lower edge of the long-term group of averages in the Guppy Multiple Moving Average (GMMA) indicator.
This behaviour signals the end of the breakout uptrend that started on May 14.
The breakout reached the target level calculated from the upsloping triangle breakout pattern. However, the rally failed to move above this level and support near 3,580 has failed.
The current index retreat is not yet a trend change. Currently, it has the behaviour of a pullback in the trend to trend support levels.
There is the potential for a new rebound to develop from the support area created by the lower edge of the longterm GMMA.
Any real rebound has two upside barriers to overcome before it can develop into a long-term sustainable uptrend.
The first barrier is the recent resistance level near 3,580. The second barrier is the value of short-term uptrend line A. This line did act as a support level for the initial breakout trend but in the future, it will act as a resistance feature.
Despite the index retreat, the underlying trend continuation is well supported as shown by the wide separation in the long-term groups of averages.
This is the key feature to watch. The degree of separation in the longterm GMMA tracks the behaviour of investors. This group of averages has remained well separated.
Investors remain confident the trend will continue. The current separation is steady and wide, showing good support from investors.
Compression is this group will show fading support from investors and this will be a caution signal for traders.
Traders are taking short-term profits as shown by the decreasing separation in the short-term group of moving averages.
The short-term GMMA indicator shows how traders are working in the market. This separation compression as some traders start to take profits.
The new uptrend is defined with the uptrend line A that now has three anchor points.
The first upside target for the breakout rally was calculated by using the width of the base of the triangle and projecting this value upwards.
The same technique can be applied to meet the next upside target near 3,720.
Momentum indicators like the Relative Strength Index (RSI) are showing confirmation behaviour.
The trend line along the peaks of the RSI is sloping down.
The trend line of the Shanghai Index is also sloping down so the indicator confirms the index trend activity.
Traders are alert for any RSI divergence signal as this may signal the resumption of the underlying 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.
Photo: Bloomberg
