(Yicai Global) Oct. 28 -- The A-share market has declined over the past three days, however, more shares have been bought by foreign investors flying against the market's unfavorable momentum and volatility.
The main contributor to the increase in their strategic allocation might lie in the low correlation between US stock and A-shares, insiders suggested.
Professional foreign institutional investors have been constantly buying in more shares against the declining trend in the third quarter. An unprecedented amount of accounts were opened by Qualified Foreign Institutional Investors and RMB Qualified Foreign Institutional Investors in September.
Meanwhile, stocks held by foreign institutions and individual investors rose by CNY55 billion at the end of September compared to June.
Foreign investors' increased holdings of A-shares are explained by risk diversification. The low correlation of A-share market will make it a distinction in global asset allocation and a rally in A-share market demand by foreign investors will in turn boost the market.
The correlation coefficient between Shanghai's Stock Exchange Composite Index and the US Standard & Poor 500 Index stands at 0.295, indicating a weak correlation despite their preference for moving in the same direction in the medium and long term.
By contrast, the correlation coefficient between the S&P 500 and FTSEurofirst 300 Index scales 0.845. The correlation coefficient between the SSE Composite Index and FTSE MIB, FTSEurofirst 300 Index and Nikkei 225 ranges from 0.2 to 0.5, Mr. Wang Bo, a senior researcher at Noah Research and Development Center told Yicai Global.
The relatively low correlation between A-share and overseas stock indices is conducive to effectively reducing risks of the whole asset portfolio when stocking A-share assets with the same yields, Mr. Wang said.
Regardless of the asset allocation scenarios of foreign investors, the purchase of A-shares can significantly improve the prospects of an investment portfolio it can have a significant effect on lowering systemic risks faced by foreign entities.