What are Chinese A shares?
Chinese A shares are the shares of companies based in mainland China which trade on the two Chinese stock exchanges, the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE). Historically, the shares were only available for purchase by mainland citizens due to the restrictions imposed by China on foreign investment. However, since 2003, some foreign institutions have been able to buy these shares via the Qualified Foreign Institutional Investor (QFII) system. Established in 2002, the QFII program allows specified licensed international investors to buy and sell on the exchanges of mainland China.
Actions A are also called national actions because they use the Chinese renminbi (RMB) for evaluation.
Chinese A shares are different from B shares. A shares are only quoted in RMB, while B shares are quoted in foreign currencies, such as the US dollar, and are more widely available to foreign investors.
What are A actions?
Chinese A shares versus B shares
Chinese A shares are different from B shares. A shares are only quoted in RMB, while B shares are quoted in foreign currencies, such as the US dollar, and are more widely available to foreign investors. Foreign investors may have difficulty accessing A shares due to Chinese government regulations, and Chinese investors may have difficulty accessing B shares, especially for currency reasons. Some companies choose to list their shares on both the A and B share markets.
Due to Chinese investors’ limited access to B shares, shares of the same company are often traded at much higher valuations on the A share market than on the B share market. Although foreign investors can now invest in A shares, there is a monthly limit of 20% for the repatriation of funds to foreign countries.
Performance of Chinese A shares
The Shanghai Stock Exchange (SSE) publishes the key performance index for A shares known as the SSE 180 index. In the composition of the index, the stock exchange selects 180 stocks listed on SSE. The selection is diversified between sector, size and liquidity to ensure adequate representation. Thus, the benchmark performance index of the index reflects the general situation and the functioning of the Shanghai securities market.
Since its creation in 1990, including a major reform in 2002, the index has experienced wide fluctuations. However, he grew up with the Chinese economy. The years 2020 to 2020 were a particularly difficult period, with a performance over 52 weeks of -21.55% on July 20, 2020.
The future of A-shares on world markets
As China moves from an emerging market to an advanced economy, demand for Chinese stocks is high. Stock market regulators are continuing their efforts to make A shares more widely available to foreign investors and have them recognized by the global investor community.
In June 2020, the MSCI Emerging Markets index announced a two-phase plan in which it would gradually add 222 Chinese large-cap stocks. In May 2020, the index began to partially include Chinese large-cap A stocks, which represent 5% of the index. Full inclusion would represent 40% of the index.
It is important that countries like China open their markets to global investors to remain competitive and prosper economically. Chinese A shares are an alternative investment for those wishing to trade Chinese securities.