Despite the volatility, the market is likely to rebound soon as the A-share market is further opening up to the global capital market with the mainland-Hong Kong mutual recognition of funds program that started on Wednesday.

Analysts said the short-term impact of the mutual recognition program may be limited, but it would be significant in the long run as it will channel more capital into the A-share market as investors trade qualified equity-backed funds under the program.

The program will allow qualified Hong Kong-domiciled funds to be sold in the mainland mass-market and for mainland funds to be sold in Hong Kong.

The initial quota of fund flow is 300 billion yuan in each direction. About 100 funds in Hong Kong and 850 funds in the Chinese mainland are expected to be qualified for participation.

David Leung, managing director of the wealth management department at Standard Chartered Bank (China) Ltd, said the program is an indication that China is opening up the capital market in a steady manner and this will effectively expose mainland investors to the global capital market.

Allocating capital globally will help investors diversify risks, which is particularly significant for investors amid the currently volatility, said Leung.

At the same time, foreign capital can also participate in the A-share market by trading qualified equity-backed or hybrid funds. Since the Hong Kong market was closed on Wednesday, qualified funds can apply for participation from Thursday, market sources said.

The regulators have also increased the quotas for the Qualified Foreign Institutional Investor program and Renminbi Qualified Foreign Institutional Investor program. By the end of June, the total quota for QFII has been increased to $75.54 billion, while the RQFII quota has gone up to 390.9 billion yuan.