Since 2002, investors who wanted to purchase A-Shares would have to be granted a qualified foreign institutional investor license, or a QFII.China has also kept investment quotas low, so foreign investors only account for 1% to 2% of the local Chinese market.
“While the planned liberalization of the A-Share market may drive up correlations in the coming years, it will likely be a slow process,” Oey added. “As such, PEK should provide diversification benefits, especially for investors with insufficient exposure to emerging markets.”
However, China A-Shares can be more volatile than overseas counterparts due to its “closed” nature. Additionally, the A-Shares come with a premium to their H-Shares counterparts. PEK currently trades at a 5.24% discount, according to Morningstar.
For more information on China, visit our China category.
Max Chen contributed to this article.