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WHY · Market attribution Q&A

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Why are the major market indices rising while many individual stocks are falling (a divergence between broad-based gains and broad-based losses)?

What happened: “The index rose while most individual stocks fell” is not a statistical contradiction; it can occur when a market-cap-weighted index rises while market breadth, measured by the number of stocks, deteriorates. The June 24, 2026 case in the research materials shows that the Shanghai Composite Index, Shenzhen Component Index, ChiNext Index, and STAR 50 all rose, even as approximately 4,034 stocks fell and only about 1,434 rose. Market gains were concentrated primarily in a small number of large-cap technology stocks.

Conclusion: The main reason is that indices are market-cap weighted, whereas the number of advancing and declining stocks is measured on an approximately equal-weight basis: gains in a small number of large-cap constituents can be enough to offset the index impact of declines in a large number of small- and mid-cap stocks. Against this backdrop, capital was concentrated in technology-growth areas such as semiconductors, communications, and ChiNext. Preferences among ETF and index-tracking funds, as well as institutions, for leading companies and index constituents further widened the divergence between the indices and most individual stocks.

CONFIDENCE

High

The market-cap-weighting mechanism and the data on heavyweight stocks, sectors, and advancing and declining stocks on June 24, 2026 directly support the explanation that gains in a small number of heavyweight stocks lifted the indices while most individual stocks fell. The evidence also corroborates capital concentration and ETF and institutional positioning, but the marginal contribution of each to specific price moves and the causal sequence cannot be fully established from the available materials.

CAUSES

Candidate causes

PrimaryMarket-cap weighting means the index and stock-count statistics use different measures

An index reflects the returns of its constituents weighted by market capitalization, whereas the number of advancing or declining stocks reflects the number of stocks. When a small number of heavily weighted stocks rise substantially, their gains can offset the impact of declines in a large number of small-cap stocks.

Evidence

  • The Shanghai Composite Index uses a Paasche-weighted methodology based on the market value and share capital of its constituent stocks.
  • On June 24, 2026, the STAR 50 rose approximately 3.82%, even though decliners outnumbered advancers within the STAR Market.
  • The trading value of STAR 50 constituents accounted for nearly 40% of total STAR Market trading value, giving heavyweight stocks a markedly greater impact on the index than ordinary stocks.
PrimaryCapital was concentrated in a small number of sectors, leading companies, and index constituents

When capital is concentrated in areas such as semiconductors, communications, advanced packaging, memory chips, and ChiNext, the heavyweight stocks being bought can lift the indices, while other sectors and numerous small- and mid-cap stocks fall as capital is diverted away from them.

Evidence

  • Semiconductors, communications, advanced packaging, and memory chips were notably active on June 24, 2026.
  • Large-cap STAR Market constituents such as Cambricon Technologies, Semiconductor Manufacturing International Corporation, and Advanced Micro-Fabrication Equipment Inc. performed strongly, lifting the STAR 50.
  • The research materials say that banks, consumer stocks, agriculture, and some previously popular stocks were relatively weak over the same period.
SecondaryETFs and index-tracking funds amplified the concentration in heavyweight stocks

When broad-market or sector ETFs attract capital, they generally allocate to constituent stocks according to index weights. Inflows may therefore disproportionately lift large-cap, more liquid constituents rather than being distributed evenly across all market stocks.

Evidence

  • Communications ETFs, semiconductor equipment ETFs, STAR Market chip-design ETFs, and ChiNext ETFs, among other products, recorded net inflows on June 24, 2026.
  • From June 22 to 24, several semiconductor and communications ETFs recorded consecutive days of inflows.
  • Shanghai Stock Exchange data show that STAR Market index products and ETFs are substantial in scale and have become important vehicles for medium- and long-term capital allocations to the STAR Market.
SecondaryInstitutional preference for liquid, higher-certainty leading stocks led to concentrated trading

When incremental capital is limited or market volatility is high, institutions may favor stocks with large market capitalizations, strong liquidity, broad institutional coverage, and clear industry trends, resulting in strength among leaders while ordinary stocks lag.

Evidence

  • Trading in STAR 50 constituents accounted for close to 40% of total STAR Market trading value, indicating a high degree of concentration.
  • Large-cap technology stocks rose, while most ordinary STAR Market stocks still fell.
  • The research materials also observed that ETF flows and institutional trading were concentrated in sectors such as semiconductors, communications, and ChiNext.
UncertainSector rotation or a shift from high-flyers to laggards weighed on other stocks

Capital may have withdrawn from previously popular stocks, weak sectors, or stocks with substantial prior gains, shifting instead to new high-growth areas. This can leave the indices supported by heavyweight stocks in the new theme while many other stocks decline.

Evidence

  • The simultaneous gains in technology-growth sectors and declines in numerous individual stocks are consistent with capital shifting from other sectors to a new market theme.
  • However, the available materials primarily cover a single day or a short period and are insufficient to confirm a sustained rotation from high-flyers to laggards.
  • Profit-taking, a technical rebound, or temporary portfolio rebalancing could also produce similar market action.
UncertainSystematic trading, derivatives, or end-of-day rebalancing amplified index performance

In theory, trading in equity index futures, ETFs, index rebalancing, and systematic strategies could disproportionately affect heavyweight constituents and amplify the short-term divergence between indices and ordinary stocks.

Evidence

  • In theory, these trading mechanisms may affect index performance through ETFs, index futures, and index constituents.
  • For June 24, 2026, the available materials primarily establish strength in technology heavyweight stocks and ETF flows; they provide no direct evidence of unusual end-of-day trading, abnormal spot-futures activity, or a regulatory finding.
ASSETS

Related securities

A · 688981

Semiconductor Manufacturing International Corporation

The research materials identify it as one of the large-cap STAR Market heavyweight stocks that performed strongly and lifted the STAR 50 that day.

A · 688012

Advanced Micro-Fabrication Equipment Inc. China

The research materials identify it as one of the large-cap STAR Market heavyweight stocks that performed strongly and lifted the STAR 50 that day.

The research materials identify it as a representative company in that day's semiconductor rally.

A · 688403

HYC Technology Co., Ltd.

The research materials identify it as a representative company in that day's semiconductor rally.

Caveats

  • This does not happen on every day when an index rises. On September 21, 2026, indices rose while approximately 4,536 stocks advanced and about 936 declined, in a broadly based rally.
  • Differences in whether data include stocks listed on the Beijing Stock Exchange, ST-designated stocks, newly listed stocks, suspended stocks, and other categories may result in different advancing and declining counts, but do not change the conclusion that market breadth was notably weak in this case.
  • Market-cap weighting explains how an index can rise, but cannot by itself establish why capital flowed to particular heavyweight stocks.
  • Data on ETF net inflows and concentrated trading value can indicate trading concentration, but cannot by themselves prove that ETFs were the sole reason heavyweight stocks rose. Capital flows and stock-price gains may also influence each other.
  • An index rise alone does not justify concluding that the fundamentals of every declining stock have deteriorated, nor does “the index rose while stocks fell” alone establish that the index was manipulated. Assessing whether the divergence is persistent requires examining equal-weighted indices, median returns, trading concentration, and advancing and declining stock counts over multiple consecutive trading days.

Research sources

  1. 1https://m.sohu.com/a/1041079095_114984?utm_source=openai
  2. 2https://finance.eastmoney.com/a/202609213880285181.html?utm_source=openai
  3. 3https://www.sse.com.cn/market/sseindex/diclosure/c/c_20150911_3984903.shtml?utm_source=openai
  4. 4https://finance.sina.com.cn/stock/bxjj/2026-06-24/doc-iniepeiu6176460.shtml?utm_source=openai
  5. 5https://wap.eastmoney.com/a/202606243781660485.html?utm_source=openai
  6. 6https://etf.sse.com.cn/fundtrends/c/10808765/files/31409f49c20a4ca6944fb4cfd387cff8.pdf?utm_source=openai
  7. 7https://finance.eastmoney.com/a/202606253783302798.html?utm_source=openai
  8. 8https://www.sse.com.cn/aboutus/mediacenter/hotandd/c/c_20200619_5130646.shtml?utm_source=openai

This page was generated by AI with web research from a user-submitted prompt and shared publicly by the submitter. It is not investment advice.

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