Through train for equities to lift capital market sentiment

"The Hong Kong-Shanghai stock program simplifies the process. No matter whether you're an individual or institutional investor, a big fund or a small fund, the threshold for participation is even," Chia said.

However, he noted that the through train is not yet a "fully open" channel, as investors are still under daily and overall quota controls. The quotas are in place to space out the initial launch smoothly to avoid undue market volatility in the short term. Quotas are only one of the initial restrictions. The others are investor eligibility for mainland investors and eligible stocks.

These requirements are also in place to ensure prudent risk management at the time of launch. Assuming a successful launch and smooth running of the program, and subject to regulatory approvals, these restrictions are expected to be phased out, said Charles Li, CEO of Hong Kong Exchanges and Clearing Ltd, which operates the stock exchange in Hong Kong.

"The daily quota control can be challenging to some investors, especially passive asset management. Because passive funds tend to operate the investment based on index changes and just before the market closes, and they cannot do that if the quota is used up by other investors," Chia said.

What's more, the lack of clarity on capital gains tax, which is the major concern for offshore investors in the QFII and RQFII programs, is another issue for the pilot program.

The need to make provisions for capital gains tax payments and the resulting effects on tracking error and profit repatriation are frequently highlighted as concerns by investors. While some market participants have chosen to make no tax provision, some perceive the lack of tax clarity a major operational risk, directly resulting in their decision to give up investment on the China market, Chia said.

Generally speaking, most investors consider the Hong Kong-Shanghai pilot program to be more flexible and fair than the QFII/RQFII programs, despite more technical issues to be tackled by both sides, he said.

"It is crucial for investors to have a good experience at the initial stage of the program. Too many constraints will reduce their interest, and authorities on both sides need to think more about that," Chia said.

MSCI announced earlier this month it wouldn't include A shares in its Emerging Markets Index, based on feedback from investors who said the QFII and RQFII systems are restrictive and offer uneven levels of market access.

Chia said A shares are still on the review list for 2015, and people will be watching closely to see if programs like the through train substantially improve conditions.

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