Wind blowing towards China
In a recent development, the sentiment in China's large, state-controlled industrial enterprises has shown a slight improvement in June, as indicated by the official purchasing managers' index (PMI) which rose by 0.2 points to 49.7. However, the PMI remains below the crucial threshold of 50 points, signalling continued decline in economic activity in this sector.
This improvement is primarily attributed to a relaxation in the trade conflict with the United States. The markets have remained positive, but this has not had a significant impact on BASF's shares, a major global chemicals producer with significant exposure to Chinese manufacturing and industrial demand.
The latest available forecast for the Caixin Manufacturing Purchasing Managers' Index (PMI) in China, as of late June 2025, is for an expected rise to 49.0 in June up from 48.3 in May. This indicates an anticipated contraction (since a reading below 50 signals contraction) but at a slower pace than in May. The Caixin PMI is focused on small and medium-sized private enterprises (SMEs) in China, making it a key barometer for private sector economic health.
The improvement in the PMI is a positive sign, but it does not necessarily bode well for BASF. The company's reliance on Chinese demand means that a weaker or contracting PMI suggests softening demand in the private sector, which could reduce orders for chemicals, especially from SMEs. Moreover, poor PMI readings tend to weigh on broader market sentiment, potentially leading to reduced risk appetite and pressure on cyclical stocks like BASF.
If the PMI reflects ongoing supply chain disruptions or weakening output growth, this could further dampen expectations for BASF’s sales and profit growth in China. However, if the official PMI (focused on larger firms) remains stronger, the overall impact on BASF could be mitigated.
In conclusion, the current forecast for the Caixin PMI suggests China’s private manufacturing sector remains in contraction but is stabilizing. For BASF, this signals continued headwinds for its Chinese business, especially among SME clients. However, if the official PMI (focused on larger firms) remains robust, the net impact on BASF’s stock performance may be limited or mixed, but the overall environment is challenging for cyclical stocks reliant on Chinese manufacturing demand.
[1] Source: Reuters, Bloomberg, and company reports [2] Disclosure: The CEO and majority shareholder of the publisher Boersenmedien AG, Mr. Bernd Foertsch, has entered into direct and indirect positions in the financial instruments mentioned in the publication or related derivatives, which could benefit from the potential price development resulting from the publication: BASF.
- The anticipated rise in the Caixin Manufacturing PMI, while indicating a slowing contraction in China's private sector, might not bode well for companies like BASF, given their significant exposure to Chinese demand and reliance on SME clients.
- The ongoing contraction in China's private manufacturing sector, as reflected by the Caixin PMI, could put pressure on cyclical stocks like BASF, even if the official PMI (focused on larger firms) remains robust, as the overall environment remains challenging for businesses reliant on Chinese manufacturing demand.
