How to play China's new open market: Strategist

New path to China stocks

The highly anticipated Shanghai-Hong Kong stock exchange link that got underway Monday is a "very big deal" that will allow Western investors get into stocks that had previously been blocked and will open up China's capital markets, investment strategist John Rutledge told CNBC on Monday.

Foreigners are now able to place buy or sell stocks listed on Shanghai's A-share market through brokers in Hong Kong. Additionally, Chinese investors can use mainland brokers to invest in Hong Kong's H-share market.

So how should American investors play it?

"If you bought the top 10 market cap stocks in Shanghai and then took the lift up as the foreign institutions buy in, that's not a bad way to initially play this," Rutledge, chief investment strategist at Safanad, said in an interview with "Power Lunch."

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Carlos Barria | Reuters

Most of those large-cap stocks are banks, insurance companies and energy shares, he noted.

However, he has a few words of caution for those looking to get into the market.

"Even in Western markets, dual-listed shares don't always arbitrage together, as the behavioral finance studies show about companies like even Royal Dutch Shell," warned Rutledge, also a CNBC contributor.

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That said, he hasn't been doing any buying, yet.

"The quotas and the initial brokerage relations make the first trades very difficult," Rutledge said.

—CNBC's Leslie Shaffer contributed to this report.