China's extraordinary decoupling and why you should watch BASF China's extraordinary decoupling and why you should watch BASF China's extraordinary decoupling and why you should watch BASF

China's extraordinary decoupling and why you should watch BASF

Equities 5 minutes to read
Peter Garnry

Head of Equity Strategy

Summary:  Just because China's stock market is roaring doesn't mean the rest of the world will follow suit. A better indicator of how things will pan out for equities globally may be found in Tuesday's earnings report from BASF.

Chinese equities jump 6.7%

This week is starting with one of the biggest decoupling moves in many years. Chinese mainland equities were up today at one point by 8.3%, ending the session up 6.7%, as the US president extends the trade deal deadline.

With macro data disappointing everywhere and with global leading indicators at their worst since late 2009, it seems as if the trade deal has removed investor focus away from the real issue. The global economy is extremely fragile. Why else would the Fed go from a hawkish view in December to suddenly Vice Chairman Clarida talking about yield caps?

The Fed has recognised the weakness and with the growing supply of US Treasuries due to the expanding fiscal deficit, the Fed wants to tell the market that it will not allow the supply-demand imbalance to cause interest rate volatility.

As we pointed out last week, Chinese sentiment does not seem to be bought to the same degree in Germany and South Korea, markets that have high sensitivity to changing economic activity in China. As long as we are not seeing those two markets confirming the Chinese sentiment we remain cautious on equities. The risk of mean reversion is extremely elevated.

CSI 300, S&P 500 and KOSPI 200 Index futures since early December 2018 (Jan 4 = 100)
Source: Bloomberg
BASF Q4 earnings on Tuesday are critical to watch 

BASF, the world’s second largest chemical company measured on revenue, is set to report Q4 earnings tomorrow at 06:00 GMT with analysts expecting EPS €0.64 down 51% y/y and revenue of €14.6bn down 9% y/y. The chemical industry is one of the most important industries in the global economy because of its frontal position in the global supply chain.

Demand for chemicals goes up when companies anticipate demand and vice versa. Naturally, chemical companies were leading the decline in Q4 but have not lead the rebound, which is a sign that the rebound is simply sentiment-driven and not based on changes in underlying macro fundamentals. BASF’s outlook is key for global investors to get an understanding of whether economic activity is changing for the better in Europe and Asia. Our take is that the outlook will be very uncertain and to the downside. 

BASF weekly share price the past five years:
Source: Bloomberg
Five-year chart on index futures for regulatory requirements.

Cumulative return on CSI 300, S&P 500 and KOSPI 200 Index futures the past five years
Source: Bloomberg

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (
- Analysis Disclaimer (
- Notification on Non-Independent Investment Research (

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.