Euro chems investors need macro improvement to turn a profit – HSBC

27 March 2013 17:34  [Source: ICIS news]

LONDON (ICIS)--European chemical companies’ run of outperforming general public markets may not last much longer in the current macroeconomic environment, UK-headquartered banking group HSBC said on Wednesday.

Chemical company stocks have been trading at all-time highs despite sluggish earnings growth, HSBC said, partly because of market anticipation of a better trading environment in the near future.

However, the premium chemical company shares are trading at compared with the general market means that the margins of safety for prospective new investors have been whittled away, leaving them exposed to shocks of any size in chemical company share prices.

“In an environment where uncertainty remains high and visibility low, prudent investing requires a reasonable safety margin,” HSBC said in its latest report on the European chemicals sector.

“We believe this safety margin has completely vanished. Investors willing to invest in the sector now will need to rest their hopes very much on an improving macro-economic outlook,” it added.

Even if the global economy does grow faster than expected, buying chemical stocks at their current premiums to the wider market represents a risk, HSBC said.

“Even if economic momentum picked up, our analysis shows that buying the sector at a premium to global PMI [purchasing managers’ index] – which is the case now – has historically resulted in negative returns,” HSBC said.

The failure of a strong uptick in Chinese demand following the Lunar New year celebrations is the latest indication that a global rally in the second half of the year seems less likely at present, it added.

By: Tom Brown
+44 208 652 3214

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