A-Shares

What are 'A-Shares'

A-shares is an expression designating shares that trade on the two Chinese stock exchanges, that is, the Shanghai Stock Exchange and the Shenzhen Stock Exchange. A-shares are shares of mainland China-based companies and were historically only available for purchase by mainland citizens since foreign investment was restricted. Since 2003, select foreign institutions are allowed to purchase them through a program called the Qualified Foreign Institutional Investor (QFII) system.

BREAKING DOWN 'A-Shares'

A-shares are defined in opposition to B-shares. B-shares are quoted in foreign currencies (such as the U.S. dollar) and are open to both domestic and foreign investment, although they are difficult to access for most Chinese investors, most notably for currency exchange reasons. A-shares, on the other hand, 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.

Of note, even though 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 but, overall, has grown along with the Chinese economy. 2015-2016 was 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 emergent market to attempt to become one of the advanced economies of the world, there is a tremendous amount of demand for Chinese equity. Regulators at the stock exchanges continue the ongoing process of attempting to make A-shares more broadly available to foreign investments and having them recognized by the world's investors.

As of July 2016, this was still a struggle. Independent provider of research-driven insights and tools for institutional investors MCSI, in July 2016, declined to add mainland-traded Chinese A-shares in its key emerging market index. The main reasons for this were concerns over market accessibility and the monthly limit on capital repatriation for foreigners.