A-Shares

What are 'A-Shares'?

A-shares trade on the two Chinese stock exchanges, the Shanghai Stock Exchange and the Shenzhen Stock Exchange. A-shares are shares of mainland China-based companies, and these shares were historically only available for purchase by mainland citizens because foreign investment was restricted. Since 2003, select foreign institutions can purchase them through the Qualified Foreign Institutional Investor (QFII) system.

BREAKING DOWN 'A-Shares'

A-shares are different to B-shares, which are quoted in foreign currencies (such as the U.S. dollar) and are open to both domestic and foreign investors. Foreign investors may have difficult accessing A-shares because of Chinese government regulations, and Chinese investors have difficulty accessing B shares, most notably for currency exchange reasons. A-shares are only quoted in Chinese renminbi. Some companies have their stock listed on both the A-shares and B-shares market. Due to the limited access of Chinese investors to B-shares, stock of the same company often trades at much higher valuations on the A-shares market than on the B-shares market.

Although foreigners may now invest in A-shares, there is a monthly 20% limit on repatriation of funds to foreign countries.

Performance of A-shares

The key performance index for A-shares is published by the Shanghai Stock Exchange and is called the SSE 180 Index. To compose the index, the exchange selects 180 stocks listed on SSE. To ensure adequate representation, the selection is diversified between sector, size and liquidity. Thus, the index's performance benchmark reflects the overall situation and operation of the Shanghai securities market.

Since its inception in 1990, including a major reform in 2002, the index has seen great fluctuations. Overall, however, it has grown along with the Chinese economy. The years 2015 to 2016 were a particularly difficult period, with a 52-week performance of -21.55% as of July 20, 2016.

Future of A-shares on the World's Markets

As China grows from an emerging market to an advanced economy, there is substantial demand for Chinese equity. Stock exchange regulators  continue efforts to make A-shares more broadly available to foreign investors and have them recognized by the global investing community.

In June 2017, the MSCI Emerging Markets Index announced a long-awaited decision that it would add stocks to its index. According to CNBC, MSCI will add 222 China A Large Cap stocks to its benchmark emerging markets index on a gradual basis beginning in 2018. The MSCI website reveals the stocks that will be listed include the Bank of China, China Merchants Bank, Guotai Junan, Ping An Insurance, according to a document on Tsingtao Brewery, SAIC Motor, Suning Commerce and Spring Airlines.