Founder Securities released a research report stating that the current ROE levels of A-shares and US stocks are relatively misaligned, with US stocks at historical highs while A-shares are bottoming out and recovering. Drawing on the US market experience, over the long term, the asset turnover ratio in mature markets enters a steady state as the central tendency for economic and revenue growth declines, while the leverage ratio also gradually stabilizes due to diminishing corporate demand for increasing leverage. The net profit margin is the core factor determining long-term changes in market ROE. Currently, the domestic economic environment is stable with signs of progress, and the "15th Five-Year Plan" charts the course for high-quality future development, indicating that the profitability efficiency of listed companies is set to improve steadily over the long run. The main views of Founder Securities are as follows:
The core conclusion of this report involves a systematic comparative analysis of the long-term trends in ROE for US and A-share listed companies, exploring the reasons behind their changes: 1. A Comparative Analysis of ROE in A-Shares and US Stocks 1) The current ROE levels of A-shares and US stocks are relatively misaligned; US stocks are at historical highs, while A-shares are bottoming out and rebounding. 2) The divergence in net profit margin and asset turnover ratio performance is the primary reason for the ROE misalignment between A-shares and US stocks.
DuPont Three-Factor Decomposition Net Profit Margin: 1) The net profit margin is the most critical factor behind the strength of US stock ROE, with the US stock ROE trend largely defined by the net profit margin. 2) The A-share net profit margin has experienced slow, volatile declines in recent years and is currently consolidating at the bottom, poised for a rebound. Asset Turnover Ratio: 1) The US stock turnover ratio, after a long-term decline, has entered a steady state. 2) The current A-share turnover ratio, similar to the early stages of US stocks, remains in a downward channel but is expected to gradually stabilize like US stocks in the future. Leverage Ratio: 1) The absolute leverage ratio of US stocks is relatively high and has remained stable at elevated levels. 2) The A-share leverage ratio has also tended to stabilize, with limited room for sustained future increases.
Summary and Implications 1) Referencing US market experience, in the long run, the asset turnover ratio in mature markets stabilizes as the central tendency for economic and revenue growth declines, and the leverage ratio gradually steadies as corporate demand for increasing leverage diminishes. The net profit margin is the core factor determining long-term changes in market ROE. 2) The current domestic economic environment is stable with signs of progress; the "15th Five-Year Plan" provides direction for high-quality future development, and the profitability efficiency of listed companies is expected to improve continuously over the long term. Risk warnings: Macroeconomic performance falling short of expectations, significant volatility in overseas markets, historical experience not necessarily indicative of the future.
Report Body 1: Comparative Analysis of A-Share and US Stock ROE. US stock ROE has demonstrated strong long-term resilience. Since 1976, the real level of US stock ROE has generally remained stable above 10%, only experiencing significant declines during major economic recessions (the 1991 third oil crisis, the 2001 dot-com bubble burst, the 2008 financial crisis, and the 2020 COVID-19 pandemic), with rapid rebounds after each recession, showcasing strong long-term resilience. The trend shapes of Chinese and US ROE are similar, but the absolute value is higher for US stocks. Since 2002 (after China's WTO accession), the overall trend shapes of Chinese and US stock ROE have been quite similar, hitting three synchronized lows in 2009, 2016, and 2020, with historical peaks in 2007, 2010, 2018, and 2021. In terms of absolute levels, over the past 20 years, the absolute ROE level of US stocks has long been higher than that of A-shares. The latter reached highs around 14% in 2007 and 2010 before beginning a slow decline, while the former, excluding the major drawdowns in 2008 and 2020, has mostly stayed above 12%, with an overall operating center slightly higher than A-shares.
After the COVID-19 disruption, the rebound in US stock ROE has been particularly strong. Following the 2020 COVID-19 shock, A-share non-financial ROE recovered first in Q2 2020 but began to decline after peaking at 9.5% in Q2 2021, reaching 6.5% by Q4 2024. In contrast, US stock ROE bottomed in Q4 2020 and rebounded steadily to a peak of 17.2% in Q4 2021, then slightly declined to 14.8% by Q4 2024. The absolute difference in ROE between China and the US is currently quite pronounced. The ROE gap between A-shares and US stocks has continued to widen since the financial crisis, with A-shares currently at the bottom of the profit cycle. Comparing Chinese and US ROE over the past 20 years, A-share non-financial ROE mainly surpassed that of US stocks during the 2007-2009 financial crisis period, while it was lower at other times. Particularly after the financial crisis, as A-share ROE gradually declined relative to US stocks, the gap between them widened. Calculating the historical percentile of current ROE for US stocks and A-shares based on data from 2003 to the present shows the A-share ROE percentile is only 3.4%, while the US stock percentile is as high as 89.8%, indicating a significant misalignment in the profit cycles of the two countries.
The divergence in net profit margin and asset turnover rate is the main cause of the difference. The divergence in net profit margins is the primary cause of the ROE difference between Chinese and US listed companies, while the asset turnover ratio amplifies the gap. To investigate the reasons for the divergence in Chinese and US ROE over the past 15 years (post-global financial crisis), a DuPont decomposition was performed on the cross-sectional ROE data for Chinese and US stocks in Q1 2011 and Q4 2024. In 2011, the ROE levels of listed companies in both countries were comparable (13.4%/13.0%). At that time, the net profit margin of A-share non-financials was slightly lower than that of US stocks (5.8%/7.3%), and the leverage ratio was significantly lower (266%/460%), but the asset turnover ratio was more than double that of US stocks (87.0%/38.5%). To eliminate the impact of high US stock leverage on ROE, calculating the ROA for both reveals that in 2011, A-share non-financial ROA (5.0%) was actually much higher than that of US stocks (2.8%). In other words, the reason US stock ROE could match A-shares at that time was largely due to its high leverage; the real profitability and turnover capacity of US stocks were actually inferior to A-shares.
However, after the 2011 peak, the ROA level of A-share non-financials began to gradually decline, while US stock ROA remained basically stable during the same period. In Q4 2018, A-share non-financial ROA was surpassed by US stocks for the first time. With the strong recovery of the US economy after the COVID-19 pandemic, the ROA gap between A-shares and US stocks gradually widened, and A-share profitability and turnover capacity began to lag behind US stocks. The most critical factor for the difference in ROE trends between A-shares and US stocks is the divergence in net profit margin performance. Under the influence of the simultaneous decline in net profit margin and asset turnover rate after 2011, A-share non-financial ROE began to gradually decrease, while US stock ROE continued to rise during the same period. By Q4 2024, A-share non-financial ROE was 6.5%, while US stock ROE had risen to 14.8%, a complete reversal. Decomposing the change in Chinese and US stock ROE from Q1 2011 to Q4 2024 using the DuPont analysis reveals that the most core factor causing the difference in ROE trends is the highly divergent performance of the net profit margin of listed companies in the two countries: the A-share net profit margin fell from 5.8% to 3.9%, a change rate of -32.2%, while the US stock net profit margin rose from 7.3% to 8.6%, a change rate of +17.7% over the same period.
The decline in the A-share asset turnover ratio further amplified the China-US ROE gap: the A-share turnover rate dropped from 87% to 60%, a change rate of -31%, while the US stock turnover rate remained basically stable during the same period, slightly decreasing from 38.5% to 37.8%. In terms of leverage ratio, changes in both countries were small: A-share non-financial/US stocks rose from 266.3%/460.3% to 277.6%/460.6%, respectively, with a negligible impact on ROE. In summary, the divergence in the net profit margin performance of listed companies is the main reason for the gradual lag of A-share ROE behind US stocks in recent years, while the decline in the A-share asset turnover factor has amplified the gap.
Net Profit Margin: Divergence between China and US, A-Share Profit Recovery Expected. US stock profitability is strong. From 1976 to the present, the US stock net profit margin level has slowly increased amidst fluctuations. Over 50 years, the US stock net profit margin has shown a long-term upward trend, rising from 5.1% in 1976 to 8.5% in 2024. Similar to ROE, the US stock net profit margin only experienced significant declines during economic crisis periods (1991, 2001, 2009, 2020), followed by rapid recovery and rebound, with its operating center slowly rising amidst fluctuations. The shapes are similar, but the absolute value of the US stock net profit margin is higher than that of A-shares. Over the past 20-plus years, the trends of A-share and US stock net profit margins have been highly similar, with three lows in 2009, 2016, and 2020, and four peaks in 2007, 2010, 2018, and 2021. Also evident is that the US stock net profit margin exhibits greater volatility and stronger elasticity, able to rebound quickly after recessionary declines. The overall absolute level of the net profit margin has long been higher for US stocks than A-shares: from 2002 to Q4 2024, the US stock net profit margin increased from 2.9% (the US was in an economic recovery period in 2002, net profit margin at a阶段性低位) to 8.6%, while the A-share non-financial net profit margin, after peaking in Q4 2007 (6.5%), declined slowly and volatily, dropping to 3.9% in Q4 2024, slightly below the 2002 level (4.4%).
The US stock net profit margin is currently at a historical high, while A-shares are consolidating at the bottom. Calculating the net profit margin percentiles for US stocks and A-share non-financials based on data from 2003 to the present shows the former is as high as 93.2%, while the latter is only 14.8%, a significant difference. The primary cause remains the relative misalignment of the Chinese and US economic cycles. The US economy experienced a strong restart after the COVID-19 pandemic due to extremely loose monetary policy and fiscal stimulus, while certain industries in China face structural contradictions of oversupply and insufficient effective demand, putting pressure on corporate profit margins. US stock profits have been strong long-term, with their share of the economic aggregate continuously rising. Over the past 50 years, the proportion of net profit of US listed companies to US GDP has shown a long-term upward trend, becoming increasingly prominent after the 1990s, with only three major setbacks during the 2001 dot-com bubble burst, the 2008 financial crisis, and the 2020 COVID-19 pandemic, each followed by rapid recovery to new highs. By 2024, the ratio of US stock net profit to GDP had risen from 3.8% in 1976 to 6.8%, indicating the excellent overall profitability of US listed companies and their growing importance in the US economy.
A-share profit recovery is anticipated. The proportion of A-share profits to GDP is slightly lower, but there is still ample room for expansion. Due to the longer development history and greater maturity of the US stock market, the absolute proportion of A-share listed company profits to GDP is lower than that of US stocks (by the end of 2024, A-shares accounted for 3.8%, US stocks for 6.8%). However, from a volatility perspective, A-share profit stability is明显更强. When US stock profits experience剧烈震荡 due to deteriorating economic conditions, the proportion of A-share profits to GDP can remain持续平稳, demonstrating stronger risk resistance. As China's capital market continues to develop and mature, and the proportion of listed companies increases, the share of A-share profits in the total economic output is expected to further increase in the future. The A-share net profit margin is expected to follow the rebound in PPI. Currently, China's economic recovery is progressing well, coupled with the continuous implementation and deepening of supply-side optimization policies such as the construction of a national unified market. Domestic PPI has achieved consecutive increases, and an inflection point has likely appeared. By the end of 2025, there are approximately 5,400 listed companies in A-shares, of which industrial enterprises (mining, manufacturing, and production and supply of electricity, heat, gas, and water) account for as much as 70%. This high proportion makes the overall profitability of A-shares very sensitive to industrial producer prices, with a significant correlation between PPI and the non-financial net profit margin of A-shares. As PPI returns to an upward cycle, the price transmission mechanism along the industrial chain will gradually smooth out, initiating a positive cycle of systematic repair for the profit margins of A-share listed companies.
Asset Turnover Ratio: Different Stages, A-Shares Expected to Gradually Stabilize. The US stock turnover ratio has entered a steady state. Since 1976, the long-term downward trend in the central level of the US stock asset turnover ratio is clear overall, but the rate of decline significantly flattened after entering the 2000s, remaining basically at the 40% level for nearly 20 years. By Q4 2024, the US stock turnover ratio was 37.8%, down nearly 30% from the 1975 level (approx. 66%). Examining the causes from the perspective of long-term economic development, over the past 50 years, the US economy has gradually transitioned from a period of rapid development to maturity, with the central tendency of GDP growth continuously declining, leading to a synchronous decline in the overall revenue growth rate of listed companies, which fell below the asset growth rate, causing the turnover ratio to decline from high levels. After 2010, US stock revenue growth and asset growth showed a trend of converging at low levels, leading to a stabilization of the turnover ratio. From 1976 to the end of 2024, the annualized growth rate of US stock operating revenue was about 6.1%, while the total asset growth rate over the same period was about 7.6%. Revenue growth lagged相对落后, and the expansion of revenue (17.4 times) was smaller than that of assets (34.4 times), corresponding to the decline in the asset turnover ratio.
The A-share turnover ratio is still significantly higher than that of US stocks. The comparison of asset turnover ratios between Chinese and US stocks shows明显的差异. Over the past 20-plus years, the absolute level of the A-share turnover ratio has been comprehensively higher than that of US stocks. In terms of trend, the turnover ratio of US listed companies has been very stable at around the 40% level over the past 20 years. In contrast, the asset turnover ratio of A-share non-financials, after rising to a peak of 94.3% in 2007 (similar to the early rising stage of US stocks), began to gradually decline as the revenue growth of listed companies peaked and fell. By the end of 2024, the turnover ratios for China and the US were 60%/37.8% respectively, with A-shares still leading significantly. Different stages of economic development are the main reason for the turnover ratio difference between the two countries. The different stages of economic development in China and the US have caused the difference in the turnover ratios of listed companies: although China is currently the world's second-largest economy, it still maintains medium-to-high growth momentum, with GDP growth around 5%. The vast domestic demand market, continuous industrial upgrading, and the development of new quality productive forces provide listed companies with relatively broad space for revenue growth. In contrast, although the US economy remains stable, its GDP growth has long hovered in the 2%-3% range, and its mature market characteristics determine that the revenue growth of listed enterprises is relatively flat. Comparing the revenue growth of A-share non-financials with China's GDP growth also shows they are closely related, with highly similar trends. In summary, the stage of economic development largely affects the revenue growth of listed companies, which is the key determinant of their turnover ratio level.
The A-share turnover ratio is currently at a historical extreme low, while the US stock turnover ratio is near the median. Calculating the asset turnover ratio percentiles for US stocks and A-shares based on data from 2003 to the present shows the current historical percentile for the A-share non-financial asset turnover ratio is 5.7%, at a historical low, while the US stock turnover ratio is near the median (51.1%). The reason is that the US stock turnover ratio has entered a mature plateau after long-term development, while China's economy is transitioning from a high-speed growth stage to high-quality development, with marginal slowing of absolute GDP growth and mean reversion of corporate revenue growth. Against this backdrop, the decline in the A-share turnover ratio over the past 15 years is essentially similar to the early decline of the US stock turnover ratio (before approximately 2000), a normal and inevitable phenomenon of economic development. Once China's economic development enters a truly mature stage, the turnover ratio is expected to gradually stabilize like that of US stocks.
Leverage Ratio: Both Trending Towards Stability, Limited Room for Significant A-Share Increase. The US stock leverage ratio far exceeds that of A-shares. Since 1976, US stocks have entered a steady state after a long period of increasing leverage. The leverage ratio of US companies was in an upward channel before 2000 but has基本维持在 below 500% since around 2000, even declining slightly, forming a medium-to-long-term steady state. The US stock equity multiplier is overall stable, while A-shares are slowly rising. Over the past 20 years, the leverage level of US stocks has overall slightly declined from high levels: after the 2008 financial crisis, US listed companies, aware of the risks of high leverage, began to gradually reduce their leverage ratios, which slowly recovered after the COVID-19 pandemic, reaching 461% in 2024. In contrast, A-share non-financial listed companies maintained a long-term slow increase in leverage before 2020, after which the leverage ratio slightly decreased, reaching about 278% by the end of 2024, significantly lower in absolute terms. In terms of their respective historical percentiles (from 2003 to present), the current percentiles for A-share non-financial and US stock leverage ratios are 46.6% and 42.0% respectively, showing little difference.
The steady-state A-share leverage ratio will be lower than that of US stocks. The fundamental reason for the迥异 leverage ratios between China and the US lies in the different development models of their listed companies. On one hand, US listed companies often increase debt to repurchase shares, thereby boosting earnings per share and shareholder returns; such "market value management" behaviors push up the leverage ratio of listed companies. Essentially, the overall high leverage of US listed companies is not an isolated corporate behavior but a product of the entire US society's high-debt ecosystem. Its high leverage is built upon the foundation of cheap capital provided by US dollar privilege and guided by a macro model of debt-driven growth. China, as a high-savings country, has a different economic development model. Market regulators持续关注 the leverage ratio of listed companies as a key supervisory point. Under policy guidance, A-share listed companies behave more prudently in their financing strategies, focusing on reducing financial risks rather than maximizing capital returns. Therefore, the ultimate steady-state leverage ratio of A-shares will be significantly lower than that of US stocks. The A-share leverage ratio is expected to stabilize after a slow increase. In recent years, the leverage ratio of A-share non-financials has actually shown a flattening or even declining trend. Learning from the US experience, it is预计 that the room for sustained long-term increases in the A-share leverage ratio is limited. It is highly likely that it will gradually stabilize after a slow rise in the future, but the absolute level of the steady state will be significantly lower than that of US stocks.
Summary and Implications. Referencing the historical成熟经验 of US stocks, the long-term trends of the overall asset turnover ratio and leverage ratio in China's capital market can be roughly预估判断: As the economy develops and matures, the asset turnover ratio of listed companies will decline from high levels and enter a steady state due to the下降 in the central tendency of economic growth and corporate revenue growth. The leverage ratio will also gradually stabilize as corporate demand for increasing leverage weakens. Therefore, the net profit margin level of listed companies will be the true core factor determining changes in market ROE. The reason US market ROE has been able to maintain long-term strength relies on the super resilience of its listed companies' net profit margins. The future ROE level of A-share listed companies will also depend on changes in the net profit margin. Under the guidance of the "15th Five-Year Plan" development outline, the long-term positive trend for A-share ROE is clear. "Achieving significant results in high-quality development" is the main goal of China's economic and social development during the "15th Five-Year Plan" period. With the prospect of steadily improving factor productivity, significantly increasing the household consumption rate, continuously enhancing the role of domestic demand as the main driver of economic growth, and fully releasing economic growth potential, the development prospects for实体企业 are promising, with ample room for profit improvement.
"Accelerating high-level科技自立自强" is the core of leading new quality productive forces. As the country increases investment in frontier areas such as artificial intelligence, quantum technology, biomanufacturing, humanoid robotics, new materials, hydrogen energy, and nuclear fusion energy in the future, relevant enterprises will seize high-value-added segments of the industrial chain through technological breakthroughs, offering vast room for profit margin improvement brought by technological barriers. "Using new demand to guide new supply, and using new supply to create new demand," enterprises can provide emerging supply and create demand through technological innovation, developing incremental markets (such as the low-altitude economy, smart homes, commercial aerospace, brain-computer interfaces, etc.), opening up new high-profit tracks, and forming a resonance between revenue growth and profit expansion. The construction of a national unified大市场 is持续推进. After the unified market is完善, a market order characterized by优质优价 and良性竞争 will be established, fundamentally optimizing the profit soil for enterprises. Looking ahead, the "15th Five-Year Plan" has already charted the course for the high-quality development of China's economy in the future. Mechanisms such as technological innovation, domestic demand牵引, and institutional optimization will systematically improve the profitability efficiency of A-share listed companies while bringing more high-quality listed targets to the capital market, promoting the continuous improvement of ROE and injecting确定性动力 into the development of China's capital market.