– The Shanghai Composite Index has surged past 3800 points, reaching decade highs, yet many individual investors see limited portfolio gains.
– Market performance is highly structural, driven primarily by banking, insurance, and high-dividend stocks rather than broad-based growth.
– Nearly 42% of stocks remain below their 2021 peaks, highlighting a significant divergence between index performance and individual stock returns.
– Over half of equity funds launched during the previous bull market have yet to break even, underscoring challenges in active fund management.
– Investors are advised to adopt balanced strategies combining growth and value investments while using ETFs to mitigate single-stock risks.
On August 18th, the Shanghai Composite Index surged past 3745 points, breaking through the previous high set on September 13, 2021, and refreshing its nearly decade-long record. The total market capitalization of A-shares exceeded 100 trillion yuan, a historic milestone never before reached in China’s stock market history. By August 22, the index closed at 3825.76 points, marking a 1.45% daily gain, while the ChiNext Index rose 3.36%. Over 2800 stocks advanced, with combined trading volume in Shanghai and Shenzhen exceeding 2.55 trillion yuan.
Despite these impressive index-level gains, a significant number of investors find themselves asking: Why has the Shanghai Composite returned to above 3800 points, but my stock account hasn’t recovered to its September 2021 value? This divergence between index performance and portfolio returns defines the current market reality.
Structural Market Trends Behind the Rally
The rebound to 3800 points has been primarily driven by a handful of heavyweight blue-chip sectors rather than a broad market upswing. While banking, insurance, and high-dividend stocks have advanced, many speculative and growth stocks have declined. This concentration means that despite index gains, investors holding non-weighted shares may not participate in the rally.
Index Performance Versus Stock Performance
From the beginning of 2025 through August 22, the Shanghai Composite Index and the Wind All-A Index rose by 14.14% and 20.69%, respectively. Small-cap stocks, represented by the CSI 1000 and CSI 2000, outperformed large caps, with the CSI 2000 surging 33.13%. In contrast, large blue chips like the SSE 50 and CSI 300 saw modest gains of just 9.08% and 11.26%, indicating limited contribution from heavyweight stocks to the broader index advance.
The Weighting Effect on Index Calculations
The banking sector exemplifies how index weighting distorts market representation. Although banks comprise only 33 constituents (less than 1.5% of the total number of index components), they account for 18.51% of the Shanghai Composite’s weight. Meanwhile, sectors like pharmaceuticals, utilities, power equipment, and basic materials collectively represent a similar weight but include 593 individual stocks. If banking stocks rise 25% while these 593 stocks fall 20%, the index would still show a net gain, creating the illusion of broad market health despite underlying weakness.
Why Many Stocks Lag Behind Index Gains
With A-share expansion continuing and listed companies now numbering 5,426, the market lacks sufficient external capital to support universal rallies. Instead, rapid rotation between sectors and concepts has become the norm, leaving many stocks behind even as indices climb.
Performance Disparities Across Market Cycles
Comparing current levels to the 2021 bull market peak reveals stark disparities. While the Shanghai Composite has gained 2.97% since that period, 41.6% of individual stocks have declined, with 25% falling more than 21.74%. Extending the timeline to early 2022 shows even more pronounced losses, with major indices like the SSE 50, CSI 300, and STAR 50 all down over 10%, and the ChiNext Index nearly 20% lower. Only the CSI 2000, representing micro-cap stocks, has posted gains of 17.21%.
Sectoral Performance Divergence
From early 2022 to present, banking stocks have surged 23.54%, non-bank financials (including insurance) rose 14.01%, and household appliances (a high-dividend sector) gained 10.20%. In contrast, pharmaceuticals, basic chemicals, and power equipment have fallen 19.86%, 19.71%, and 35.30%, respectively. This sectoral split explains why many investors experience the “index up, portfolio down” phenomenon.
The Challenge of Timing and Participation
Investor behavior exacerbates the disconnect between index performance and portfolio returns. Many investors remain观望 during initial market upturns, only entering after hot sectors have already surged. This tendency to “chase rallies” often results in buying at peaks and suffering subsequent declines.
The September 2024 Rally Case Study
A extreme example occurred during the September 24 to October 8, 2024 rally, when most stocks surged dramatically within eight trading sessions. The Wind All-A Index jumped 35%, the Shanghai Composite and CSI 300 gained about 30%, the CSI 1000 and CSI 2000 advanced roughly 40%, and the ChiNext Index skyrocketed 66.6%. However, investors who entered on October 9 faced significant losses, with 24.4% of stocks still down from that date.
Fund Performance: Professional Investors Struggle Too
If retail investors face challenges, professional fund managers might be expected to navigate structural markets more effectively. Yet data reveals that many equity funds have similarly failed to capitalize on index gains.
Equity Fund Performance Metrics
According to Wind data, 724 equity funds were established in 2021. As of August 22, only 307 had net values above 1.0, while 103 ranged between 0.9-1.0, 98 between 0.8-0.9, and 216 below 0.8. Despite the Shanghai Composite hitting decade highs, 58% of funds launched during the previous bull market remain underwater, with 30% down more than 20%. The worst-performing fund recorded a net value of just 0.3348, representing a two-thirds loss.
The Wind Equity Fund Total Index, which includes all equity funds and reflects overall market performance, closed at 10603.49 points on August 22—flat since early 2021 and down 4% from its September 2021 peak. This indicates that, including dividends and reinvestment, the entire equity fund sector has yet to recover from the last bull market’s peak.
Navigating Structural Markets: Strategies for Investors
Given the current environment, investors should consider tailored strategies to align with market realities rather than relying on broad index performance.
Balanced Portfolio Construction
A “growth offense + value defense” approach combines growth stocks for potential outperformance with value stocks for stability and risk resilience. Diversification across sectors and market caps helps mitigate concentration risk, while careful position sizing ensures liquidity to capitalize on market adjustments.
The ETF Advantage for Most Investors
For ordinary investors, selecting individual stocks and timing sector rotations proves challenging. Sector-specific ETFs or thematic funds offer exposure to favored trends while diversifying single-stock risk. This passive approach reduces complexity and enhances portfolio resilience.
Looking Ahead: Market Realities and Investor Expectations
While the Shanghai Composite’s breach of 3800 points fuels optimism about a “healthy bull” or “slow bull” market, structural characteristics will likely persist. Investors must recognize that not all stocks will rise in tandem and that index performance may not translate directly to portfolio gains.
Embracing Market Realities
Accepting that universal rallies are increasingly rare helps set realistic expectations. Focusing on fundamental analysis, sector trends, and disciplined investing—rather than chasing short-term hotspots—can improve long-term outcomes.
Recognizing the structural nature of today’s market is essential for investment success. While indices may reach new highs, individual portfolio performance depends heavily on stock selection, sector exposure, and timing. Adopting a diversified, balanced approach—possibly through ETFs—can help investors navigate divergence between index levels and actual returns. Stay informed, avoid emotional decisions, and consider professional advice to align strategies with market realities.