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'The sky's the limit', says Guppy

By Andrew Moody and Jiao Xiaoyang (China Daily)
Updated: 2009-09-11 08:10

Daryl Guppy, the Australian trader and analyst, says that despite recent heavy falls the sky is the limit for the Shanghai Composite Index.

The 55-year-old investment guru told China Daily he expects the index to resume its long-term growth path once current volatility is over. The index plunged to a three-month low of 2,639 last Tuesday but has risen from 1,664 last October. It hit levels of over 6,000 towards the end of 2007.

"The upside of the market is unlimited but that is not to say it will be 7,000, 8,000 or 9,000. What is important is the nature of the trend and we can see from a technical perspective a consistent long-term trend emerging," he says.

Guppy, who is founder and director of Guppytraders.com, a resource for traders across the world, says current high daily trading volumes - regularly exceeding 300 billion yuan in Shanghai and Shenzhen - give the market solid support.

"The large trading volumes provide liquidity as well as volatility. When markets have low trading volumes it is difficult to buy and sell. The more people investing in the market creates a stable trend," he says.

Guppy says the Shanghai market, which is still not open to foreign investors, will emerge as one of the world's strongest.

"There is a shift in financial power from the West to China. What is happening in the Shanghai market is influencing what is happening in European, Asian and American markets," he says.

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The Australian, who has been compared with other investment gurus such as Warren Buffet and George Soros, believes what is happening in China is similar to the United States at the beginning of the 20th Century.

"At the time the Dow Jones index was trading at 900 and people said it would never reach 1,000. Fifty years later it was trading at 9,000 and people said it would never reach 10,000. So we can never anticipate how large the market will develop," he says.

Guppy, who used to work on building roads in the Australian Outback, began his investment career in his early 30s converting A$2,000 to A$20,000 in a year trading in just one stock.

His latest book, The 36 Strategies of the Chinese for Financial Traders, has just been published. His last, Chart Trading, is in to its fifth Chinese language reprint, having sold 22,000 copies here.

Unlike Buffet a so-called value investor who buys companies he considers good value, Guppy is a technical analyst (sometimes know as "chartists") looking for trends in markets.

"When Warren Buffet buys a company he buys a seat on the board and so can influence the direction and management of the company. When you buy 100 shares, you don't get to sit on the board," he says.

Guppy dismisses George Soros' view that the growth of markets such as Shanghai is a bear market rally rather than the beginning of a bull market, which the Australian insists is what we are seeing.

"When George Soros was talking about markets he meant Western markets. He doesn't have any experience of Chinese or Shanghai markets," he says.

The Chinese were originally skeptical about technical analysis, believing it did not apply to markets influenced by the government. Many are now converts.

"Governments always use many methods to try to influence and change market behavior. What is happening in China is no different from what is happening in world markets. It is a feature of mature markets," he says.

"Technical analysis is just as useful in China markets going back 15 years as it is now," he says.

Guppy says by using technical analysis he was able to spot the current economic crisis a year before it happened.

"The classic picture of a head and shoulders emerged and on the second shoulder I got out," he says.

Guppy says the Shanghai index is in a healthy consolidation phase at present.

"The market is moving sideways between about 2,600 and 3,000. This is good. It is like a long march. We are taking a small rest before continuing the trend," he says.

"If the market goes to, say, 3,300 then we have a high probability of the trend continuing to 4,000 and beyond."