A glance early in the day reveals a landscape filled with opportunities and fluctuations in the A-share marketAs trading commenced, three main focal points emerged within the markets: the dividends sector, the 'initial store economy,' and the health sectorNotably, the dividend index took the lead with a marked increase, providing substantial support to the overall marketAt the same time, the newly highlighted sectors of initial stores and health benefitted from evolving market dynamics.

The surge in the dividend sector can be attributed to two major factors—valuation considerations and a dip in bond yieldsThis morning, the yield on China's long-term bonds continued its downward trend, with the 30-year yield reported at 1.99%. The strength in dividends coincided with an upswing in the A50 index, which saw a sharp increase in early trading

Both the 'initial store economy' and health sector advancements appear to be spurred on by favorable policies, signifying that capital is seeking out fresh avenues for investment.

Fluctuations remain

On Monday morning, market volatility persisted but with a ray of optimismStocks related to the initial store economy witnessed significant gains; brands like Disu Fashion and Yimin Group reached their maximum trading limits, while Miaowei Exhibition surged over 10%. Investors noted that the initial store economy index skyrocketed more than 9% at one point during the session.

The positive momentum surrounding the initial store economy theme continues to thriveNotable announcements from “Xi'an Publishing” indicated rapid rejuvenation within the initial store sector in Xi'an

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The deputy minister of commerce, Sheng Qiuping, highlighted the urgency in rolling out policy documents that support the initial store economyFurthermore, a visit by the Shanghai Municipal Bureau of Commerce to investigate the characteristics of young consumer behavior shows a deepening focus on youth-related trends.

Another sector gaining attention is health care, where stocks like Yueshen Health, Aoyang Health, Shuangjian Co., Aojiahua, and Jinling Pharmaceutical reached their trading limitsOther shares such as Kuaile Coand Kangliyuan also showed strong performanceNotably, the emergence of a joint statement from nine government departments emphasized support for the high-quality development of eldercare services, further underscoring the potential growth in the health sector.

However, the standout performer of the day remains the dividend sector

During the early trading hours, this segment outperformed the overall market significantly, with the dividend ETF rising to an impressive 0.67%. Sectors such as finance, power, and infrastructure showcased commendable increasesRecent insights show that the dividend ETF has seen a marked uptick in share volume over the past fortnight, indicating renewed investor interest.

Research from CITIC Securities noted that the national financial system meeting reinforced a cautious tone around financial risk management, suggesting that credit risk in the banking sector is likely to ease next yearPresently, insurers are expected to increase exposure to dividend stocks as the end of the year approaches, amid a favorable environment characterized by high dividends, low volatility, and steady operationsThis underpins the A50's strong performance, which surged over 0.5% during the morning session.

A silver lining often overlooked

Interestingly, the market may be overlooking a critical positive indicator—the rapid contraction in M1 growth.

According to financial data released last Friday, M1 fell by 2.4 percentage points in November to 3.7%, while the growth rate of M2 declined by 0.4 percentage points to 7.1%. This trend reflects a revitalization in the capital markets, where the wealth effect is enabling greater fluidity in the economy

As a result, the gap between M2 and M1 has notably narrowedObservations from October indicated the first improvement in the year-over-year growth rate of M1, which fell by a lesser margin of 1.3 percentage points compared to September, settling at -6.1%. Following earlier enhancements in M2 growth, indicators for M0 and M1 are showing signs of rebound.

Historically, M1 has played a significant role in the equity market dynamicsIt's often said that movements in M1 can dictate trading behavior due to its representation of corporate current deposits and operational vitalityDuring the bull market phase that began in 2005, M1's implications were pronouncedThe People's Bank of China’s inclusion of more household current deposits into M1 aims to accurately reflect the economic activity in the real sector.

CITIC Jin Investment believes that starting January 2025, the M1 category will encompass personal current deposits and reserve funds held by non-bank payment institutions

This adjustment will allow M1 to showcase a clearer picture of actual economic operations, trending towards more stabilityRegarding deposit increment, November saw an addition of 2.17 trillion yuan in deposits, which is 360 billion yuan less than the previous year; residential deposits increased by 790 billion yuan, but this is down 1.189 billion yuan year-over-year, while corporate deposits rose by 740 billion yuan, marking an increase of 4.913 billion yuan, with fiscal deposits up 1.4 billion yuan, an annual increase of 4.693 billion yuan; meanwhile, non-bank deposits fell by 1.39 trillion yuan year-over-year.

Huafu Securities believes the near future will serve as a policy reprieve, yet the impact of existing policies on the economy should persistMoreover, China's credit expansion is predominantly reliant on government and household sectors, with the corporate sector remaining stable