China stock market returns and the real economy. Just how disconnected?

There are a number of reasons for China's stock market surge over the last year: Central bank easing, investment flowing from the weak housing market into stocks, the accelerated opening of China's financial markets, flows from expectations of China shares being added to global indices.

But much of the surge seems disconnected from the real economy. How much? Below are some correlations between economic activity and share gains.  Column one is the correlation of economic activity with stock returns from 2005 to mid-2014 for long-term reference. The second column is the correlation of activity with stock returns over the last year.

Over the last year, China's sizeable stock market gains have not boosted overall consumption via the wealth effect.  However, jewelry and food/tobacco/bev consumption have been correlated with share gains over the last year. Total retail sales are negatively correlated with the market recently. Output from the industrial sector has also moved significantly out-of-step with stock market gains. China's PMI has been disconnected from stock market advances over the last year.

But, total loan growth is positively correlated with stock market gains.

So, many economic measures are totally disconnected from stocks, but loans and stocks are rising hand-in-hand.  What effects China's stock market gains will have on the real economy seem unclear given the disconnect between the two.