Understanding China A-Shares
A-Shares versus H-Shares
DAVID LAI: When investors talk about the Chinese market, it is a bit confusing whether they are talking about the A-shares listed in Shanghai and Shenzhen, H-shares or Red Chips listed in Hong Kong, or the U.S. ADR listed Chinese shares. To make it simple, we will qualify or divide them into two categories. One is the onshore market and the other one is the offshore market. The onshore market is A-shares listed in Shanghai and Shenzhen and the offshore market is different types of classes listed outside of mainland China. Right now in terms of the number of stocks, market cap, and the daily turnover, onshore A-shares are three times the size of offshore Chinese equities. As an investor, we should not ignore the Chinese A-share market if we want to invest in China to enjoy its economic growth.
Right now there are around 100 dual-listed Chinese equities in both A-shares and in H-shares. Most of them are large cap in nature. However, if you consider 2,600 A-shares listed in the onshore market, only 100 are dual-listed, so you will still find a lot of companies quite unique in their business and sector exposure and only accessible through the Chinese A-share market.
Access A-Shares Through RQFII
LAI: As a foreign investor, if you want to invest in A-shares, you have to go through either QFII (qualified foreign institutional investor), or the RQFII scheme (Renminbi qualified foreign institutional investor). If you don't have the quota, you have to invest in the products or services provided by the quota owner. In terms of assets, QFII has more limitation. For example, you can only repatriate your capital on a biweekly basis and therefore QFII may not be the best approach for foreign investors. RQFII scheme was launched two years ago and it enables an investor to channel back the currency Renminbi from the offshore market to the on shore equities and fixed-income markets. In terms of the limitations, it allows a daily repatriation, so it would be easier for foreign investors to get in and out of the A-share market. If you do not have the quota by yourself, then you probably will be invested in a product or service provided by the quota owner. For example, a lot of products that will be available are index-tracked ETFs or fixed-income products.
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