Due to restrictions on foreign ownership of A-shares, China is far behind other large markets, both developed and emerging, in terms of foreign ownership of its equities. Even including Chinese stocks listed in Hong Kong or New York, foreign ownership of Chinese stocks was just 11.4% at the end of 2012, half the level seen in Japan and barely more than 20% of foreign ownership of German stocks.

In late September, Chinese regulators expanded the renminbi qualified foreign institutional investor (RQFII) that allows foreign investors access to stocks traded on China’s mainland after ASHR and the Deutsche X-trackers Harvest CSI 500 China-A Shares Small Cap ETF (NYSEArca: ASHS) were forced to limit creations because robust demand forced the ETFs to bump up against their RQFII limits. [RQFII Expansion Helps A-Shars ETFs]

The Hong Kong, Shanghai and Shenzhen are the sixth-, seventh- and tenth-largest, respectively, in the world by market value, according to KraneShares, KBA’s issuer. Of the nearly 570 Shanghai-listed stocks that will be made available in the Connect effort, those stocks represent 90% of the Shanghai Stock Exchange’s market value and 80% of the daily turnover, according to KraneShares data.

Mainland China P/E and Earnings Growth

Chart Courtesy: KraneShares