Geopolitical tensions in the Middle East have intensified recently, creating disruptions to shipping routes that directly threaten global chemical supply chains. This has driven a simultaneous rise in prices for many chemical products, drawing renewed market attention to the sector.

Wind data shows that since July 20th, the CSI Sub-Industry Chemical Theme Index has climbed 10.50%, outperforming the Shanghai Composite Index's 6.01% gain and the CSI 300's 4.34% rise over the same period. Behind this market rally, multiple medium-term investment logics are building momentum, with supply-demand dynamics showing signs of improvement and valuations having retreated to reasonable levels following an earlier period of adjustment.

Against this backdrop, the Invesco Great Wall CSI Sub-Industry Chemical Theme ETF (ticker: 158032) has officially begun its subscription period, offering investors a convenient tool to gain exposure to leading chemical companies across the sector in a single transaction.

Price Signals First: A Curve from 3930 to 5515

The chemical industry serves as the backbone of the economy, present in everything from smartphone screens to automotive paints, from fertilizers and pesticides to lithium battery materials. Yet despite this ubiquity, the sector has rarely captured sustained market attention. Over the past three years, the industry experienced significant headwinds as overcapacity, depressed prices, and compressed profit margins kept the sector mired near its cyclical lows.

However, data from 2026 begins to tell a different story. The China Chemical Product Price Index (CCPI) serves as the most direct window into industry conditions. On January 4th, 2026, the CCPI stood at 3930 points, near historical lows. Subsequently, as WTI crude oil climbed from roughly $57 per barrel at the start of the year to $85 per barrel by August 18th (with Brent crude surpassing $90 during the same period), cost-push factors combined with improving supply-demand fundamentals drove the CCPI steadily higher, reaching an intra-year peak of 5515 points.

As of August 18th, the CCPI stood at 4879 points, representing an approximately 24% increase from the beginning of the year. This price recovery has already transmitted to the secondary market, with the Yangtze River Basic Chemical Index rising 23.11% over the past year and the CSI Sub-Industry Chemical Theme Index gaining an even stronger 27.82% during the same period.

Supply-Side Restructuring: Three Forces Reshaping the Industry

The price recovery represents only the surface-level change. The more fundamental transformation is occurring on the supply side, which distinguishes this chemical cycle from previous ones. The first force comes from the natural clearing of the capacity cycle. Capital expenditure growth in the chemical industry has slowed significantly over the past two years, with construction-in-progress year-on-year growth turning negative, signaling that the current expansion phase is nearing its conclusion. The deceleration of new supply growth provides a foundational condition for price recovery.

The second force stems from systematic policy constraints. The concept of "anti-involution" has been incorporated into the 15th Five-Year Plan, with multiple chemical sub-sectors voluntarily constraining supply through industry association initiatives and coordinated production cuts. The "dual control of carbon emissions" system was formally implemented in 2026, with the General Offices of the CPC Central Committee and the State Council issuing the "Comprehensive Assessment Measures for Carbon Peak and Carbon Neutrality" in April, bringing chemical and petrochemical industries into the expanded national carbon market. Additionally, seven ministries including the Ministry of Industry and Information Technology issued the "Action Plan for Accelerating the Renovation and Replacement of Aging Petrochemical and Chemical Industry Facilities (2026-2029)," promoting the exit of outdated capacity through equipment modernization. Under this multi-pronged policy pressure, the industry's shift from "scale competition" to "quality competition" may have become irreversible.

The third force comes from shifting competitive dynamics overseas. According to research from Dongxing Securities, European chemical plant shutdowns increased sixfold between 2022 and 2025, with approximately 37 million tonnes of capacity exiting the market cumulatively. During the same period, new investment in Europe plummeted from 2.7 million tonnes to just 0.3 million tonnes. High energy costs are accelerating the contraction of European chemical capacity, while Chinese chemical leaders continue to expand their global market share.

On the demand side, a similar shift between old and new growth engines is underway. Traditional real estate chain demand remains weak, but downstream sectors including automotive, home appliances, and textiles maintain steady performance. The more noteworthy growth comes from emerging segments: AI computing expansion is driving demand for electronic fluorochemicals, high-purity electronic chemicals, and other new materials, while carbon fiber is accelerating its penetration into wind turbine blades and commercial aerospace applications.

On the export front, customs data shows that China's chemical industry and related products achieved cumulative exports of approximately $96.2 billion from January to May 2026, representing 20.3% year-on-year growth. May alone saw export growth surge to 29.1% year-on-year. Against the backdrop of frequent global geopolitical conflicts, the stability of China's chemical supply chain is translating into tangible global competitiveness.

Valuation Gap: Market Has Yet to Price in the Improvement

As of August 18th, 2026, the CSI Sub-Industry Chemical Theme Index traded at a trailing price-to-earnings ratio (PE-TTM) of 21.20 times and a price-to-book ratio of 2.59 times, near historical averages with no signs of significant overvaluation. Meanwhile, industry fundamentals have improved structurally compared to a year ago. Starting from the fourth quarter of 2025, chemical sector profitability bottomed out and began recovering, with both revenue and net profit continuing to improve year-on-year in the first quarter of 2026.

Several securities firms concluded in their 2026 mid-year strategies that with supply-side capacity expansion nearing its end and overall demand recovering, market trading logic is transitioning from the earlier "valuation recovery" phase to "earnings realization." This mismatch between rising profits and undemanding valuations constitutes one of the core arguments for the chemical sector's current allocation value.

In this context, the newly launched Invesco Great Wall Chemical Industry ETF (ticker: 158032) deserves attention. This ETF closely tracks the CSI Sub-Industry Chemical Theme Index, which currently comprises 50 constituent stocks. By Shenwan secondary industry classification, agricultural chemicals account for 27.39%, chemical products 24.74%, chemical raw materials 12.90%, refining and trading 11.93%, batteries 9.54%, plastics 7.09%, chemical fibers 3.24%, and aerospace equipment 1.08%, spanning the full chemical industry chain from upstream resources to downstream new materials. The top ten constituents represent a combined weight of 43.44%, striking a balance between benchmark representation and portfolio diversification.

Several chemical-related indices exist in the current market with distinct characteristics. The CSI Petrochemical Industry Index leans more toward upstream resource attributes, while the CSI All-Share Chemical Index offers broader constituent coverage with a higher proportion of small and mid-cap names. By comparison, the CSI Sub-Industry Chemical Theme Index maintains higher sector purity while moderately incorporating petroleum, petrochemical, electrical equipment, and military new materials targets, anchoring to the chemical industry's core while capturing growth elasticity from industrial upgrading.

Of course, cyclical recoveries never follow a straight upward line. The CCPI's retreat from its intra-year peak of 5515 points to 4834 points serves as a reminder that price recovery is not instantaneous. Fluctuations in crude oil costs will also continue to influence profit distribution across the chemical midstream. Nevertheless, for investors focusing on the chemical sector's cyclical recovery opportunity, index-based products like the Chemical Industry ETF (158032) offer a convenient way to gain diversified exposure to leading companies across the entire chemical value chain in a single allocation.

Worth noting additionally, the launch of the Chemical Industry ETF (158032) marks a further expansion of Invesco Great Wall's presence in cyclical and resource-focused ETFs. The company has been strategically building out this segment, establishing a comprehensive cyclical category matrix that includes products covering oil and gas, non-ferrous metals, electricity, grains, and agriculture. With the addition of this chemical ETF, the company's cyclical product lineup now spans the core segments of the cyclical value chain, from upstream oil, gas, and non-ferrous metals, through midstream chemicals and electricity, to downstream agriculture and fisheries.

This expansion not only provides investors with a richer set of tools for cyclical sector allocation but also demonstrates the company's continued commitment to developing index products in specialized sectors.