Franklin FTSE China ETF

FLCH

Market cap $291M

FLCH, the most cost-efficient Chinese ETF around, has outperformed non-Chinese EMs and global markets by 2x since we last covered it. FLCH's largest sector, Chinese consumer discretionary, stands to benefit from rising consumer confidence readings (currently at 30-month highs) and anticipated 2026 fiscal and monetary stimulus. Despite concerns over higher tariffs, China continues to mitigate pressures on the trade front very comfortably, with the trade surplus crossing the $1 trillion mark.

Easing tensions between China and the U.S. may be supportive of markets. Still uncertainty amid plans for Trump to visit China in 2026.

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.