Sinolink: Attention on the chemical sector increases, as the improvement in price differentials becomes the main investment trend.

Sinolink's research report states that against the backdrop of turbulent oil prices, the overall attention to the chemical industry has also been significantly increased. The allocation ratio of the sector continues to rise, considering that the current expansion cycle of the sector is basically over and the profitability of most industries is still at a relatively low level in the cycle. Moreover, the cost-effectiveness of some sectors that were temporarily damaged during the surge in oil prices has gradually been reflected after adjustments, therefore, continuing to be optimistic about investment opportunities in the large chemical sector. It is recommended to focus on sub-industries that have demand support and positive changes on the supply side in the cyclical direction, sub-sectors that were damaged by oil prices in the past but are expected to recover in the future, and leading companies with significant competitive advantages; in terms of industry trends, it is recommended to continue to focus on the opportunities brought by the accelerated application of AI in the material end. Sinolink's main views are as follows: The level of mutual fund allocation to the chemical industry continues to rise, but the concentration of holdings in leading companies has slightly decreased. In the first quarter of 2026, the proportion of mutual fund allocation to the chemical industry increased to 6.3%, a year-on-year increase of 2.2 percentage points and a month-on-month increase of 1.6 percentage points. After rebounding from the bottom in the fourth quarter, continuous buying was seen in the first quarter. In terms of the style of mutual fund allocation to the chemical sector, the total market value of the top ten heavy-weighted stocks accounted for a slightly lower percentage of the mutual fund's heavy-weighted chemical industry holdings, decreasing from 41.6% in the fourth quarter of 2025 to 38.2% in the first quarter of 2026. The holdings of Wanhua Chemical Group, Shandong Hualu-Hengsheng Chemical, and Qinghai Yanhu Industry in the chemical sector have increased in proportion. The increase in the first quarter compared to the fourth quarter of 2025 was 0.6 points, 0.7 points, and 1.8 percentage points, respectively. Attention in the first quarter of 2026 was mainly focused on the polyurethane and coal chemical sectors. In terms of heavy-weighted market value of individual stocks, the top five stocks that received increased allocation in the first quarter were Qinghai Yanhu Industry, Wanhua Chemical Group, Shandong Hualu-Hengsheng Chemical, China Jushi Co., Ltd., Fspg Hi-Tech; the top five stocks that saw reduced allocation were Sailun Group, Guangdong Hongda Holdings Group, China Petroleum & Chemical Corporation, Guangzhou Tinci Materials Technology, Qingdao Sentury Tire. In terms of the number of holdings by funds: the top five in terms of increased holdings were Wanhua Chemical Group, Qinghai Yanhu Industry, China Jushi Co., Ltd., Shandong Hualu-Hengsheng Chemical, Satellite Chemical. For newly added heavy-weighted stocks and exited heavy-weighted stocks, the top five in terms of heavy-weighted market value in the first quarter of 2026 were Bluestar Adisseo, Oriental Energy, Jiangsu Lopal Tech. Group, Tangshan Sanyou Chemical Industries, Intco Recycling Resources; the top exited heavy-weighted stocks were North Huajin Chemical Industries, Guangdong Fangyuan Environment Co., Ltd., ZheJiang Tiantie Science & Technology, Chengzhi Co., Ltd., Guangdong Marubi Biotechnology. The core theme remains the cyclical rising prices, the sectors that received increased allocation mainly include potash fertilizers, polyester, and polyurethane, while the holdings in the tire and civil explosive sectors have slightly decreased. The sectors that received increased allocation all have rising price trends. Potash fertilizers have strong price support during the peak spring planting season. The market price of potash fertilizer exceeded 3,150 yuan/ton at the port and 3,100 yuan/ton (delivered) domestically. The market continued the high price trend in February with the warming expectation of spring fertilization, and prices remained high. In March, the market saw a slight decline in price due to increased supply. Polyester has strong cost support against the backdrop of geopolitical conflicts. In late February, with the rapid surge in oil prices, coupled with the impact of unavoidable circumstances on raw materials, the expectations of supply shortage further intensified, combined with multiple favorable factors, increased production costs significantly pushing up polyester prices in the short term. Polyurethane, under the strong cost support and boost from rising international prices, saw a rapid rise in product prices. The tire and civil explosive sectors that saw decreased allocations were expected to have pressured performance. In the background of a sharp increase in oil prices, the core raw material rubber prices in the tire sector also rose significantly. Although companies raised prices to pass on the cost, the lag in price adjustment and the inability to fully cover cost pressures are expected to lead to profit declines. The civil explosive sector saw a decline in both volume and price due to weakening demand, which in turn affected performance. Risk factors include a decline in domestic and foreign demand, drastic fluctuations in oil prices, changes in trade policies affecting industry layout, and a decline in product prices.