In-depth Analysis of the Divergence Between Economic Data and the A-Share Market

According to the latest data, China’s November economic indicators did show a comprehensive weakening trend: retail sales grew by 1.3% year-on-year, hitting the lowest level since 2023; industrial added value increased by 4.8%, the lowest since August 2024 [1]. Meanwhile, automobile consumption fell by 8.3%, and high-end liquor revenue dropped by 6.2%, indicating a clear weakening of domestic demand.

At the same time, the A-share market has indeed shown an upward trend since June 2024. From historical experience, this divergence between economic fundamentals and stock market performance is not uncommon, but its duration and degree are worthy of in-depth analysis.

Policy-driven valuation increases are mainly based on the following logic: the market expects the government to introduce more growth-stabilizing policies, including fiscal stimulus and monetary easing. However, this expectation support has several key constraints:

: It usually takes 6-12 months for policies to take effect from announcement, and the market often prices in expectations in advance. If policy effects fall short of expectations, the pressure for valuation regression will increase.

: Currently, China’s fiscal deficit rate and local government debt level are already high, limiting the space for further large-scale expansion of fiscal policy.

: When PE increases are mainly driven by policy expectations without performance support, a valuation-performance scissors gap is formed. Historical data shows that this divergence is usually unsustainable in the long term (generally no more than 6-12 months).

: As economic data continues to weaken, analysts often lower earnings expectations, putting pressure on stock prices.

Despite weak economic fundamentals, monetary policy remains relatively loose, providing liquidity support for the market. A low-interest rate environment is conducive to maintaining valuations.

Against the backdrop of real estate market adjustments and declining yields of wealth management products, A-shares, as an important asset allocation channel, can still attract some capital inflows.

: If economic data continues to weaken in the next 2-3 quarters, market confidence will be severely impacted.

: If the effects of existing policies are limited and new policies are insufficient in strength, expectation support will weaken.

: External shocks such as policy shifts in major global economies and geopolitical risks may accelerate adjustments.

: Each quarter’s earnings disclosure period is an important window to test the rationality of valuations, especially in April, August, and October.

: Market expectations are prone to adjustments before and after major policy meetings (such as the Central Economic Work Conference).

: In an environment of increasing uncertainty, low-valuation and high-dividend defensive sectors are relatively safer.

: Industries less affected by economic cycles, such as essential consumer goods and public utilities, have relative advantages.

: Focus on marginal changes in monetary and fiscal policies.

: Against the backdrop of overall economic weakness, look for segmented areas with policy support and rising industry prosperity.

The divergence between economic data and the A-share market may persist in the short term (3-6 months), mainly benefiting from policy expectations and liquidity environment support. However, in the longer term (6-12 months), if economic fundamentals fail to improve and performance verification is missing, this divergence will be unsustainable.

Key turning points may occur when:

1. Earnings Disclosure Season
   : When performance cannot support high valuations
2. Policy Window Period
   : When policy strength or effects fall short of expectations
3. External Shocks
   : When major changes occur in the external environment