China's equipment is under pressure in 2Q26: Utility capital expenditures slow down, focus on electromagnetic wire demand in data centers, the leader remains strong (J.P. Morgan)
A JP Morgan report shows that China’s capital goods industry faces certain cyclical pressures in 2Q26.
A JP Morgan report shows that China’s capital goods industry faces certain cyclical pressures in 2Q26. Specific data shows that the growth rate of investment in public utilities and power grids has slowed down, resulting in orders for related power transmission and transformation equipment falling short of expectations at the beginning of the year. However, the bright spot was the explosion in demand for electromagnetic wires brought about by the construction of data centers (IDCs), which partially offset the weakness in the traditional sector. At the same time, the demand for phase-out and replacement of National IV/V National heavy-duty trucks will support sales in 2026 (full-year sales in 2026E are expected to be 1.17 million units). The report believes that despite short-term disturbances, leading companies with overseas capabilities and AI/data center-related exposures (such as Dongfang Electric and Inovance Technology) still show good resilience. The market may have too high expectations for the recovery of the domestic equipment cycle, but insufficient understanding of the structural demand driven by AI. One-sentence conclusion: China's equipment industry as a whole is in a weak recovery cycle, but AI data centers and exports will become structural growth engines. Leading companies can rely on alpha advantages to generate excess returns in a weak beta environment. Positive/negative: Positive for Inovance Technology (300124.SZ), Dongfang Electric (600875.SH/1072.HK) and data center electromagnetic wire suppliers (such as Jinbei Electrician). Bearish for traditional power equipment companies. The market's concerns about the quarter-on-quarter performance of 2Q26 have been partially reflected, but the new incremental pricing brought by AI has not been sufficient. Catalysts: 1) Adjustments to State Grid/China Southern Power Grid’s investment plan in the second half of 2026; 2) Capital expenditure plans of technology giants such as Alibaba and Tencent (especially IDC construction); 3) Monthly sales data of China’s heavy truck industry, verifying the release of the need for elimination and replacement.