Chemical industry: investment strategy of chemical industry in 2020

Looking back on 2019: the industry's boom is falling, and the market is mixed

The macro economy is under pressure, and the manufacturing industry is expected to be pessimistic. In 2019, GDP growth of major global economies such as the United States, the European Union and China continued to decline, continuing the downward trend since 2018. In terms of manufacturing industry, the PMI index of major economies in 2019 is below the boom and bust line for most of the time, showing poor expectations and worries about downstream demand and economic environment. In particular, the U.S. PMI index also fell below the boom and bust line in the middle of the year, further aggravating the pessimistic expectations of the global economy.

PPI deviated from CPI, and the price trend of chemical products was downward. In 2019, the price of domestic industrial products will continue to fall. PPI index rebounded in the first quarter, all the way down until the end of the year slightly stop falling signs. The CPI index continued to rise under the promotion of pork prices, widening the gap between CPI and PPI. After peaking in 2018, the prices of chemical products began to decline under the influence of supply and demand, cost and other factors. In the first quarter of 2019, although chemicals rebounded, they still turned around and continued to go down.

Looking forward to 2020: watching spring return

Global economic expectations are down, and domestic downward space is limited. In 2019, a number of institutions issued early warnings on global economic growth, among which the IMF lowered its global economic growth forecast four times a year, and the growth of emerging markets and developing economies decreased by 3 percentage points. According to the data of the National Bureau of statistics, the main domestic economic indicators are better than expected, the industrial growth is rising, the market sales growth is accelerating, the investment growth is stable, the employment situation is generally stable, and the national economy remains stable and progressive.

Grasp the leading position and pursue prosperity. In the downward phase of the cycle, leading enterprises tend to be more resilient by relying on their technology, capital and management advantages, so as to further consolidate their leading position and broaden the moat. However, their valuation will be significantly underestimated due to the influence of market preference, and they are expected to achieve cycle crossing by virtue of their valuation and long-term performance growth advantages. Key recommendations: Wanhua chemical, Yangnong chemical, private large-scale refining and chemical, etc. At the same time, scientific and technological progress promotes and leads the innovation of terminal demand, and drives the continuous upgrading and development of high-end manufacturing industry. In this process, industrial innovation will put forward higher requirements for material properties and promote the rapid development of new material industry. Key recommendations: Real Madrid technology, Puyang Huicheng, Jacques technology, etc.

Risk tip: crude oil prices fall. There are many factors influencing the international oil price, and the downward trend of oil price may restrain the price of chemical products. The macroeconomic downturn has led to a sharp decline in the prices of bulk products. Macroeconomic downturn, the downstream demand is sluggish, affecting the demand side of chemical products, leading to a drop in the price of chemical products.