Despite the over 20% growth over the past month posted by China's A-share market, foreign institutional investors are not swayed to further invest via the Shanghai-Hong Kong Stock Connect, says Tai Hui, chief market strategist, Asia, at J.P. Morgan Asset Management.

The volatility in A-shares caused by retail money is making such investors anxious rather than encouraged, according to Hui. Foreign investors are even more likely to maintain their wait-and-see attitude until the market stabilizes, he adds.

Market experts attribute the recent rally in A-shares to different factors. Hui notes this is the first time he is seeing the Chinese government encouraging investments into the equity market amid the property sector correction and the declining returns on wealth management products.

Hong Hao (洪灏), managing director and chief China strategist at Bank of Communications, believes the growth is mostly driven by the expectation of a structural change in the A-share market - to have more foreign capital to participate. Despite the historical launch of the Stock Connect programme, major hurdles for foreign investments in the equity market remain.

However, Hui's view is that the impact of the Stock Connect and expectations of foreign participation in the mainland equity market is limited and represents investor sentiment. The biggest beneficiaries are small caps, which are not part of the indices, but the latter is mostly accessed by foreign investors through exchange traded fund (ETF) products.