In our view, China continues to present a major opportunity for many European (and US) chemical companies. Those who have moved early and built up relationships with the leading local companies are now moving the next stage of investment and increasingly tailoring product for the domestic Chinese market (as opposed to the re-export market). This is requiring greater participation of local workforce and greater R&D investment. Managing this
versus RoCE remains the challenge for some but with experience in the region rising we see this as a mitigated risk for most.

Most companies appear confident over the government's improving ability to manage the economy and while some slowdown is expected through the coming quarters most believe that any sharp deceleration of growth will be avoided, although property in some regions remains a risk (more to sentiment that the economy given the high levels of equity in property ownership). The stimulus package continues to work well - the implementation and transparency of the package is materially above than seen in the Western world.

Both North American and European chemical companies are well represented in the region although at the margin the exposures and historic focus seem to be larger within the Europe names. This is typically a function of a greater desire (or need) to find growth outside of their domestic markets than US peers through the 1990s.

Eoin Treacy's view The chemicals sector has been a major beneficiary of lower energy costs, particularly natural gas, and the sector has a high degree of commonality across geographical regions.

The Dow Jones Speciality Chemicals Index has retraced the majority of its bear market decline. It found support in the region of the 200-day moving average in February and broke upwards later that month. A sustained move below 350 would be required to question scope for additional higher to lateral ranging.

The FTSE350 Chemicals Index is retesting the 2008 peak and is relatively overextended compared to the 200-day moving average. While the likelihood of a mean reversion continues to increase, a downward dynamic would be required to indicate that it has begun.

The Dow Jones Euro Stoxx Chemicals Index continues to consolidate below the January high near 550 and a downward dynamic would be required to hinder potential for a successful upside break.

The Topix Chemicals Index is lagging its international peers but outperforming its domestic market. It broke upwards to new recovery highs last week and a downward dynamic would be required to check potential for additional upside.

The Korea Chemical Product Index has been trading mostly below 3000 since October and is currently testing the upper side of the range. A downward dynamic would be required to limit scope for a successful upside break.

The Thai Petrochemical and Chemical Index broke upwards two weeks ago and rallied impressively to more than 600. It is now somewhat overextended relatively to the MA but a downward dynamic would be required to check momentum beyond a brief pause.

Also see Comment of the Day on March 15th.