A spanner has been thrown into the early workings of the qualified foreign institutional investor rule. The eagerly anticipated arrival of foreign investors and their capital has largely not materialized. Instead, the market has witnessed a steep downward cycle since the official decision to allow foreign investors to trade A shares.

As of last Friday, the Shanghai Composite Index dropped 4.8 percent since November 8 when the rules hit the market.

"The market had long anticipated the securities regulator of the release of the QFII incentive," said Dai Ming, an analyst with Citic Securities Co. "The news had already been well digested."

But true to their demeanor, Chinese investors were not shaken. Instead, they took a wait-and-see attitude.

Analysts say now is the right time for foreign institutions to build up their portfolios. Currently, the average price-to-earnings ratio stands at 36 times, very close to that in the U.S.

The recent downturn has created a good opportunity for foreign investors. There are stocks with solid earnings available here which are obviously undervalued, according to analysts.