China Merchants Securities: The Federal Reserve enters a cycle of interest rate cuts to seize investment opportunities in the tool industry

The Zhitong Finance App learned that China Merchants Securities released a research report saying that in 2025, there were many external disruptors to the consumer goods export chain, the boom showed structural differentiation, motorcycles and all-terrain vehicles continued to prosper, and the growth rate in other segments declined quarterly. In 2026, the tariff issue will ease, and freight rates are low. The Federal Reserve has begun a new cycle of interest rate cuts, which will stimulate US consumption and investment activities, promote the bottom of the US real estate cycle, and promote the tools industry that has benefited from the recovery of US real estate. Second, it is recommended to continue to focus on the sanitary pump industry and domestic motorcycles going overseas.

The main views of China Merchants Securities are as follows:

2025 review: There are many external disturbances, and the level of prosperity is structurally divided

Consumer goods export chain companies are located in a wide range of industries, and the drivers for growth are varied. Therefore, the market is mostly driven from the bottom up, the logic between individual stocks is relatively independent, and the sector effect is not strong. Since this year, the share of institutional holdings of export chain companies has generally been low. The revenue growth rate and net profit growth rate in the first three quarters showed a trend of declining quarterly, mainly affected by tariffs, and overseas customers prepared goods early. However, there are still segments in the export chain where prosperity continues to exceed expectations, such as motorcycles, all-terrain vehicles, etc., so the performance of related companies continues to rise high, and the stock price performance is also relatively good.

2026 outlook: Macroeconomic environment improved, basically positive

In terms of the macro environment, in 2026, the tariff issue will ease, and freight rates are in a low position. The Federal Reserve has begun a new cycle of interest rate cuts, which will stimulate US consumption and investment activities, promote the bottom of the US real estate cycle, promote the tool industry that has benefited from the recovery of US real estate, and secondly, continue to focus on the sanitary pump industry and domestic motorcycles going overseas.

Tool industry

The demand for tools is directly related to the boom in the US real estate industry. The real estate industry is highly sensitive to mortgage interest rates. Currently, it is being suppressed by high interest rates, and the real estate cycle is at its bottom since 1999. With the implementation of the Federal Reserve's interest rate cut and mortgage interest rates falling, new/second-hand housing sales are expected to resume growth, which in turn will drive a recovery in demand for tools.

Plastic bathroom pump industry

It is mainly used for water wellness facilities such as jacuzzis, spa baths, swimming pools, etc., and is in high demand in Europe and America. On the one hand, plastic bathroom pumps are used as supporting facilities for new construction projects and are directly related to real estate development in North America. On the other hand, they can also be used as a consumption upgrade for existing projects. Demand is also suppressed when interest rates are high. Therefore, demand for plastic bathroom pumps is expected to grow as interest rate cuts are implemented in the future.

Motorcycle industry

The global motorcycle market is vast, and demand is resilient. According to Statista data, the global motorcycle industry's sales volume reached 54.6 million units in 2023, +2.44% year over year, and the market size reached 139.6 billion US dollars, +2.72% year over year. The competitive landscape of the industry shows the characteristics of Japanese brands leading the way, Indian brands in the second tier, Chinese brands breaking through, and European and American brands adhering to high-end market segments. Currently, domestic brands are gradually getting rid of their dependence on low-end commuter models, shifting to high added value such as large displacement and electrification, and gradually entering the European and American markets, which is expected to continue to increase their market share globally.

Key recommendations: Superstar Technology (hand tools+electric tools), Quanfeng Holdings (electric tools+garden tools) suggest focusing on: Ling Xiao Pump Industry, Chunfeng Power (small and medium), Longxin GM (automobile & home appliances), etc.

Risk warning: European and American economic recession, sharp rise in raw material prices, tariff risk.