JPMorgan has released a research note stating that the recent sharp selloff in the Chinese machinery sector is not supported by fundamentals. After reviewing recent management briefings, operational updates, and the latest sales trends, the bank maintains a positive outlook on the sector and advises investors to accumulate on weakness.

The bank has "Overweight" ratings on Weichai Power (02338), Techtronic Industries (00669), Sany Heavy Industry (06031), and Sinotruk (Hong Kong) (03808), with target prices of HKD 55, HKD 179, HKD 31, and HKD 55, respectively.

The bank notes that the US AD/CVD investigations primarily target linear hydraulic cylinders and certain components imported from China, focusing on component suppliers rather than complete equipment OEMs. Management at Sany Heavy Industry, XCMG, and Hengli Hydraulic all emphasized that the investigations do not target their core businesses, and the risk of expansion to complete machines or other key components remains low at present.

Overseas growth remains robust, with continued margin discipline, while new product launches and automation initiatives are yielding results. Domestic demand is soft, but pricing discipline and cost control are supporting resilience. Sany Heavy Industry and XCMG expect overseas revenue growth to exceed 20% in the third quarter, while domestic sales may remain flat or decline slightly year-on-year.

The bank adds that Generac has announced a long-term agreement with Amazon to supply backup generators for data centers, with initial deliveries of approximately USD 2.4 billion scheduled for 2027 to 2028. This highlights the scale and visibility of the AIDC opportunity and has positive implications for Weichai Power.

JPMorgan views the recent correction as an opportunity to accumulate AIDC leaders and global machinery stocks with strong operating cash flow and visible growth, while remaining selective on Chinese cyclical stocks. It continues to recommend Weichai Power and Techtronic Industries due to their direct exposure to AIDC, self-sustaining growth, and multi-year order visibility in data center and grid-related infrastructure. The bank also favors Hengli Hydraulic (601100.SH), Sany Heavy Industry, and Sinotruk (Hong Kong).