CITIC Securities' Bao Chengchao: Domestic large-cap blue-chip valuations are at relatively low levels, while blue chips in the domestic demand and manufacturing sectors have the most ample room for recovery.

The AI premium in overseas markets has been largely absorbed by the rise in non-AI valuations. The PE ratios of non-AI, non-financial industry leaders in the US and Japan stand at 33.5x and 23.0x respectively, positioning them at the 98th and 95th percentiles of their historical ranges. Meanwhile, non-AI blue-chip stocks on the A-share market related to domestic demand and manufacturing trade at an aggregate PE of just 15.6x, sitting at the 21st percentile historically. Bao Chengchao believes that this misalignment indicates that large-cap blue-chip stocks on the A-share market tied to domestic demand and manufacturing have the most substantial room for valuation recovery.