Franklin FTSE China ETF

FLCH

Market cap $241M

Despite mounting macro headwinds at the start of the year, Chinese equities have continued to deliver positive performance. While near-term flows can provide further upside, the durability for the equity rally will hinge on policy choices ahead.

Getting emerging market exposure is a viable option in the current market environment. That's especially so given the global de-dollarization and prospect of further rate cuts by the Federal Reserve.

Franklin FTSE China ETF has a price far from the highs, but forward valuations are above the 10-year average. This is normally not a problem, and I usually tend to interpret it as a sign of confidence. But the problem is that here the forward EPS consensus remains quite static, despite all the stimuli put in place.

Among APAC equity markets, Australia has a higher beta to oil prices while India, Indonesia and Thailand have lower betas. Domestic political uncertainties have been one main reason for the decoupling trend seen in Indonesia and Thailand.

China's Q2 GDP growth met government targets at 5.2% YoY, but the recovery remains uneven beneath the headline numbers. High-tech manufacturing and services are driving growth, while real estate and retail sectors continue to struggle, highlighting structural challenges.

Trump's tariff reduction rhetoric and China's economic data seem to signal a positive outlook for the FLCH ETF, despite political risks. FLCH's lower expense ratio and better diversification make it a strong representative of the Chinese market. There seems to have been more trade destabilization in the U.S. than in China following the implementation of tariffs, as suggested by the countries' import-export reports.

Has the AI trade moved to China? Why Chinese chipmakers may soon change the semiconductor space.

One of the top themes year-to-date has been China-focused technology ETFs. China technology stocks have surged on AI enthusiasm related to China startup DeepSeek's AI model launch.

FLCH is a less commonly used ETF compared to the broader MCHI—less liquid, but cheaper and more performant. The Chinese economic outlook remains competitive, with GDP expected to grow by nearly 5% despite concerns over domestic consumption. Contextualizing economic and fundamental data, China has growth prospects parallel to the U.S., but with more attractive P/E ratios.

Several hedge funds are pouring money into Chinese equities on the DeepSeek buzz and the potential for the country's policy easing.