How could the US midterm elections affect demand for tools?

  • The report says that divided government may make large-scale fiscal expansion more difficult, cooling inflation and expectations of further rate hikes, and in turn bringing down expectations for long-term US Treasury and mortgage rates. Lower mortgage-rate expectations could help ease the market’s pessimistic view of demand in the property chain.
  • Checks and balances between the executive and legislative branches may also make it harder to implement targeted tariffs on China and supply-chain legislation, cooling expectations for aggressive tariff increases.

Why could AI infrastructure increase tool usage and value?

  • The report cites Guotai Junan Securities’ assessment that tool-use density in AI data center construction is about 2 times that of a typical infrastructure project. Data centers have more complex mechanical, electrical, and plumbing systems, and tasks such as precision wiring and cooling installation require greater tool precision.
  • Labor shortages in the US construction industry encourage contractors to favor more efficient professional tools; construction services, represented by mechanical, electrical, and plumbing work, often account for more than 60% of the value of data center construction.
  • Professional contractors have higher requirements for reliability and work efficiency and are willing to pay a premium for professional-grade products. At the same time, standardization across projects around a single battery platform extends delivery beyond individual tools to a package of tools, batteries, accessories, and services. The report names Great Star Industrial, Shandong Weida, Techtronic Industries, and Chervon Holdings as relevant companies.

How does Huatai Securities view A-share style and valuations?

  • Huatai Securities believes that since July 2026, the current A-share valuation correction has approached the levels seen in 2015 and 2022. In the base case, the impact of tighter global liquidity on valuations may already have been substantially priced in, and the probability of a further sharp decline in overall valuations this year is low.
  • This view faces two constraints: whether earnings downgrades have already been priced in ahead of time, and whether the overhang in technology-sector positioning has been sufficiently absorbed.
  • The firm expects that from now through the first half of 2027, the overseas rate-hiking cycle and the relative resilience of US fundamentals could pose upside risks for the dollar, making A-share absolute valuations volatile. If the dollar adjusts in the second half of 2027 and the domestic credit cycle improves, A-shares may see a window for valuation recovery. The trend of tightening residual liquidity may continue through year-end, while large-cap stocks may outperform on a relative basis through the middle of next year.