China’s Shanghai Composite retreated from resistance at 3400, but this is a long way from signaling a down-trend.
Hong Kong’s Hang Seng Index has shown much stronger gains over the last 3 years, but diverged in the second half of 2014, falling while the Shanghai Composite soared. Breach of support at 22500, and the rising trendline, would warn of a primary down-trend.
This opinion by Andrew Sheng highlights some of the challenges facing the Middle Kingdom:
#China's growth model has reached its end http://t.co/4co8WZGAG4
— Project Syndicate (@ProSyn) January 21, 2015
It is hard to find earlier examples of economies which experienced similar growth spurts to that enjoyed by China over the last decade. The closest are probably the US in the 1920s and Japan in the 1980s. Both of these should serve as a warning that times of rapid growth can generate vast imbalances within an economy that inevitably lead to periods of painful adjustment.