Founder: There is still room for the valuation of small and micro-cap stocks to rise, and the subsequent structural opportunities deserve attention.

The Founder released a research report stating that after the continuous rise in stock prices, the valuation level of small and micro caps has shown a significant increase. However, whether in absolute valuation levels or relative valuation levels, there is still a considerable distance from historical extremes. In the current market environment, the small and micro cap market is still worth paying attention to. From the perspective of market value factor, small market companies are expected to have significant excess returns in 2025; from the fundamental logic perspective, the report believes that the dominance of small and micro caps reflects the innovative exploration characteristics of the economic transformation and upgrade period. The main points of the Founder are as follows: From the perspective of market value factor, small market companies are expected to have significant excess returns in 2025. As of August 8th, the CSI 2000 Index had a year-to-date growth rate of 25.3%, significantly outperforming the benchmark indices such as the SSE 50, CSI 300, CSI 500, CSI 1000, and CSI 2000. The WIND Micro Cap Index has surged by over 50%, reaching new historical highs. From the apparent data, after the continuous rise in small and micro caps, the valuation has significantly increased. The overall P/E ratio of the CSI 2000 Index currently stands at 146 times and the P/B ratio is 2.75, both of which are the highest since the index was launched in 2023. However, it should be noted that the overall valuation of small and micro caps is significantly impacted by some companies reporting losses. Looking at the latest sample of the CSI 2000 Index, the total net profit for the past four quarters is 77.5 billion, but the total losses of the losing companies amount to 121.1 billion. If the losses are excluded, the overall P/E ratio of the CSI 2000 Index is only 57 times. In terms of the median, the latest median P/E ratio is 37.7 times and the median P/B ratio is 3.0 times, which are at the 61% and 65% historical percentile levels since 2010, and not significantly abnormal. The bank further divided all A-share companies into groups based on market value ranking to examine the absolute and relative valuation status of small market value companies. The results show that the median P/E ratio and P/B ratio for the smallest 20% and largest 20% market value groups of all A-shares are 1.17 times and 1.09 times, respectively, which are at the 33% and 59% historical percentile levels since 2010, and the relative valuation levels are basically consistent with or even lower than the aforementioned CSI 2000 component stocks. In conclusion, after the continuous rise in stock prices, the valuation level of small and micro caps has shown a significant increase. However, whether in absolute valuation levels or relative valuation levels, there is still a considerable distance from historical extremes. From a fundamental logic perspective, the bank believes that the dominance of small and micro caps reflects the innovative exploration characteristics of the economic transformation and upgrade period. In the current market environment, the small and micro cap market is still worth paying attention to. Risk Warning: Overseas markets may experience significant fluctuations, and past experiences do not guarantee future outcomes.