Petchem stocks attract buying interest

By Malini Hariharan

Is this the right time to buy petrochemical stocks? Asian equity analysts are having a tough time answering this question being posed by portfolio managers across the region.

They are seeing a ‘mini downcycle’ emerging with a weaker second half relative to H1 2010 and potentially a weak H1 2011, explained one equity researcher. So the perfect opportunity to accumulate petrochemical stocks would be later this year as investors can then benefit from expected improvements in profitability in 2011-12 and 2013.

“Many investors did not buy petchem stocks in late 2009 and H1 2010 and they missed out the good times; so a lot of portfolio managers are starting to pay attention. They believe that they need to catch the next upturn,” he added.

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Pic Source: Stockmoneymarket.com

Some other investors with a shorter investment horizon are looking at shorting petrochemical stocks in anticipation of weaker stock prices later in the year, said another researcher.

But a big problem is forecasting earnings for petchem companies. Many had not anticipated the margin recovery in 2009 and visibility for the rest of this year and 2011 is still cloudy.

The ongoing downward pressure on olefins, polyolefins and many other petchem prices is closely linked to developments in crude oil and the global financial market where risk-averse investors are collecting back liquidity.

Petchem prices are likely to stabilise only after crude does. And when that will happen is still an open question.

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