China chemicals: investors remain lightly positioned amid high volatility, waiting for a reallocation window after earnings normalization in 2H26

Overview

This report is HSBC's investor marketing feedback on the China chemicals sector. Based on discussions with 35 investors in Hong Kong, Beijing and Shanghai in late April, the core conclusion is that investors are maintaining relatively low exposure to the chemicals sector amid high volatility and geopolitical uncertainty, and would rather wait for easing of the Middle East conflict and earnings normalization before re-allocating to structural opportunities.

Core views

The core views are as follows: first, as a midstream industry, chemicals is significantly affected by volatility in crude oil and chemical prices, and investors generally believe it is difficult to trade in the near term. Second, the earnings beat reported by some companies in 1Q26 was mainly driven by inventory gains from rising crude oil and downstream chemical prices since March, and the market worries that 1Q or 2Q may be the earnings peak. Third, if 2H26 enters a post-conflict normalization environment, the relatively high earnings in 1H26 may not be sustainable, and current valuation appeal will diminish. Fourth, fertilisers and agrochemicals still stand out as relatively resilient medium-term themes, but Yuntianhua and Chanhen face concerns in 2Q26 that rising input costs may compress margins.

Analysis framework

The report uses an investor feedback research approach, summarizing the positioning, risk appetite, sector focus, and stock discussion priorities of 35 investors from regional roadshows, and combines HSBC's disclosed rating framework with historical share-price and rating charts for the relevant companies.

Methodology notes

• Investor feedbackRegional investor marketing discussions

  Extract market consensus and disagreements through investor meetings in Hong Kong, Beijing and Shanghai

  The report explicitly mentions meeting with 35 investors in late April and summarizes the feedback into themes such as light positioning, earnings-peak concerns, and fertiliser demand resilience.

• Rating frameworkHSBC stock ratings and target price basis

  Upside or downside versus the current share price is used to map to Buy, Hold or Reduce ratings

  The disclosure page explains that target prices are generally based on analysts' assessment of a stock's current value, with the market expected to reflect this over 6 to 12 months; target price upside of more than 20% versus the share price typically corresponds to Buy, a level close to the current share price typically corresponds to Hold, and a discount of more than 20% typically corresponds to Reduce.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China chemicals sector

  The core industry asset covered by the report

  Strengths

  Raw material cost advantages and demand resilience remain structural supports.

  Weaknesses

  As a midstream industry, companies' operations are squeezed by volatility in crude oil and chemical prices, making the sector difficult to trade in the near term.

  Comparison

  Compared with sectors with more stable demand, chemicals is more sensitive to crude oil prices and geopolitical conflict.

  Risks

  Prolonged Middle East conflict, earnings rolling over from the 1H26 peak, and a lack of valuation appeal.

• Fertiliser / agrochemicals

  A subsector that investors are closely watching

  Strengths

  Demand is relatively resilient; if the agricultural cycle recovers in 2H26, industry fundamentals may improve.

  Weaknesses

  Rising input costs such as sulphur may compress margins.

  Comparison

  Compared with the broader chemicals sector, investors are more constructive on the medium-term outlook for agrochemicals.

  Risks

  Uncertainty over export quota policy, global planting-season demand may already be suppressed, and rising costs.

• Yuntianhua

  One of the preferred names mentioned in the report

  Strengths

  Benefits from investor focus on a medium-term recovery in agrochemicals.

  Weaknesses

  Faces concerns in 2Q26 that rising input costs may compress margins.

  Comparison

  Along with Chanhen, it is one of the fertiliser-related names discussed in the report.

  Risks

  Rising sulphur costs, fertiliser demand recovery slower than expected, and policy easing falling short of expectations.

• Guizhou Chanhen (002895.SZ)

  A fertiliser-related company mentioned in the report's charts and text

  Strengths

  It sits within the fertiliser and agrochemicals theme that investors are watching.

  Weaknesses

  Margins may be affected by rising input costs.

  Comparison

  Along with Yuntianhua, it is a fertiliser-related stock discussed in the report.

  Risks

  Higher costs, weaker-than-expected demand resilience, and policy uncertainty.

Key data

• Report date2026-05-18The report was disclosed on 2026-05-18, and market data are as of the close on 2026-05-15 unless otherwise stated in the report.
• Number of investor meetings35 investorsMeetings were held in Hong Kong, Beijing and Shanghai in late April.
• Main negative factorsHigh volatility, uncertainty over the duration of the Middle East conflict, insufficient valuation appeal, and concerns about a 1H26 earnings peakThese factors have led most investors to maintain low exposure to the chemicals sector.
• Structural positivesRaw material cost advantages, demand resilience, and a potential recovery in the agricultural cycleThe report believes these factors still support medium-term structural opportunities.
• Key subsector focusFertiliser / agrochemicalsInvestors are focused on export quota policy, global planting-season demand, and the impact of rising sulphur costs on margins.
• HSBC independent rating distributionBuy 59%; Hold 36%; Sell 6%Disclosure data as of 2026-03-31, not the report's rating conclusion on any single security.

Impact & implications

For portfolios, the report suggests that the China chemicals sector is better suited to selectivity and patience in the near term: before the path of the Middle East conflict, crude oil prices and earnings normalization becomes clearer, investors may continue to stay underweight or wait on the sidelines; if the agricultural cycle improves in 2H26 and geopolitical risks ease, fertilisers and agrochemicals may become the preferred reallocation themes.

Risks

• The Middle East conflict lasts longer than expected, causing investors to continue avoiding trading in the chemicals sector.
• Volatility in crude oil and chemical prices amplifies pressure on midstream companies' operations.
• 1Q26 or 2Q26 becomes the earnings peak, and valuation appeal declines after earnings normalize in 2H26.
• Rising input costs such as sulphur compress margins for fertiliser and agrochemicals companies.
• Uncertainty remains around the pace of easing in fertiliser export quota policy and demand during the global planting season.

What to watch

• Whether the Middle East conflict eases and investors reallocate back into the chemicals sector.
• Whether chemicals companies' earnings in 2H26 normalize from the high level seen in 1H26.
• The impact of crude oil prices and downstream chemical price volatility on inventory gains and margins.
• Whether fertiliser export quota policy is eased.
• Whether the agricultural cycle begins to recover in 2H26, supporting fertiliser demand and improved industry fundamentals.
• Margin pressure at Yuntianhua and Chanhen in 2Q26.