Morgan Stanley Fund: The AI direction is overcrowded, focusing on the large-cap growth direction under the logic of valuation recovery.

MS Fund believes that A shares still focus on the AI direction in the medium and long term, but its performance has been very consistent in the short term and is crowded. Besides, it focuses on the large-cap growth direction under the logic of valuation recovery. In specific fields, companies with overseas capabilities, high-end manufacturing, and auto, home appliances, and consumer electronics that benefit from domestic consumption stimulus policies are all worth paying attention to.

MS Fund said that the market further warmed up as a whole from last week. The recent private enterprise conference was held, and the conference released important signals to promote the healthy and high-quality development of private enterprises and encourage private enterprises to strengthen independent innovation. It further boosted market confidence, especially stimulating the enthusiasm of the market to continue to buy technology stocks. Meanwhile, the characteristics of the stock market still exist, and the traditional industries did not rise significantly.

Overall, several major events have jointly promoted the strong market. The private enterprise conference released positive signals to support the development of private enterprises, encouraging private enterprises to strengthen independent innovation, and the concentration of private enterprises participating in the conference is significantly improved; after the release of Grok3 by xAI, DeepSeek released NSA, which continues to make progress in cost reduction, stimulating the continuous performance of AI hot spots; the capital expenditure guidance of Alibaba far exceeded expectations, and the infrastructure investment in cloud and AI in the next three years is expected to exceed the total of the past ten years. The revaluation of Chinese assets is underway, but it is only more pronounced in Hong Kong stocks in the short term.

From the static PE, the S&P 500 is 28.1 times, and the CSI A500 is 14.8 times. The valuation gap has been continuously widened in recent years; the possibility of convergence is relatively large. Hong Kong stocks have risen significantly this year and are almost the best-performing market in the world. It is expected to be caused by the joint inflow of southbound trading and foreign capital. On the one hand, southbound trading has continued to flow into Hong Kong stocks this year, and on the other hand, overseas funds are rebalancing their global asset allocation and returning to Hong Kong stocks from other emerging markets.

Correspondingly, the possibility of capital outflow from the US market is increasing. The University of Michigan Consumer Confidence Index has fallen recently, and some investment banks have started to lower their expectations for US economic growth. The US dollar index also performed relatively weakly, which provides a favorable environment for capital to flow back to Chinese assets.