In spite of past failed predictions, some analysts claim China’s valuations lack fundamental support and warn of a looming market collapse, believing investors are being deceived.
Many investors are beginning to wonder if American and European equities’ valuations are anywhere close to having support from underlying fundamentals. Apparently, this is not a problem for these markets because the price is paid for future cash flows.
Its analysis presented with full confidence that Chinese companies producing DeepSeek, AI-driven cars, efficient green energy solutions and other sweeping tech changes will not have future cash flows.
Despite a relentlessly rising market, Western news services carry headlines like “US trade war squeezes China powerhouse.” It is a very wearing negative narrative that obscures what is happening in China. If we accept the narrative of China’s economic struggle, of China’s long-delayed but inevitable collapse, then we stop doing business with China and certainly do not consider expanding or opening new business with China.
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If this happens, the anti-China narrative will have succeeded in shaking confidence. Businesses and investors must look past media negativity to spot emerging opportunities.
Thirteen years ago, Shaun Rein published The End of Cheap China. At the time, it was largely dismissed by economic commentators who were already confidently predicting China’s imminent collapse. Yet the myth of a cheap and therefore economically fragile China still dominates the thinking of many analysts based far from the country itself. In their view, cheapness implies poor quality.
Their narrative does not explain how ‘cheap’ high-quality goods, from T-shirts and high fashion, to handphones and EVs, are produced. Cheap is the result of highly efficient, high-quality production by skilled labour or robotics and super-efficient logistics chains. Cheap in China is not about poor materials or poverty wages. It is about delivering exceptional value for money.
See also: Hong Kong’s investment firm sees opportunities from geopolitics
Moreover, the digital industrial revolution is about more than smarter smartphones. It drives a profound economic shift well underway in China. Protecting against it requires more than trade barriers to halt China’s push for technological excellence.
Future business opportunities lie here. Those using outdated metrics miss the digital wave, bypassing the revival of inefficient US rust belt industries.
Technical outlook for the Shanghai market
The Shanghai Index is moving rapidly towards the long-term upside target near 3,970. This target is calculated by measuring the width of the trading bands and projecting this value upwards. This is a theoretically calculated target and does not closely match any previous historical resistance or consolidation levels.
Because there are no historical resistance levels, this suggests the index has room for further rises towards the peak high of June 2015.
The breakout above at 3,700 is significant. This level is also the value of the three market peaks made in February, September and December 2021.
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This type of rise will inevitably experience some pullbacks and retreats. There are five support features. The first support feature is the value of the lower edge of the short-term group of averages in the Guppy Multiple Moving Average (GMMA) indicator. This is currently near 3,740. A pullback to this level is a normal behaviour in a fast-moving rally. This was also seen on Aug 4 when the index retreated and then rebounded.
The second support feature is the value of the long-term uptrend line A. Currently, this value is also close to the value of the lower edge of the short-term GMMA.
The third support feature is the upper level of the trading band — now the lower edge of the next trading band. This value is near 3,710.
These support features are closely clustered together, and this suggests that any pullback in the market will find support in this area. This increases the probability of a rebound and uptrend continuation.
The fifth support feature is a combination of the values of the upper edge of the long-term GMMA and the value of trend line C. A fall to this level represents a more substantial retreat in the market and a potential trend change.
Notably, trend line C intersects and crosses trend line A around the end of September. If the market remains in an uptrend at this time, then this crossover represents a change in the trend support characteristics.
Daryl Guppy is an international financial technical analysis expert. 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 former national board member of the Australia-China Business Council. The writer owns Chinese stock and index ETFs
