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.
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.
FLCH, KTEC and MCHI are included in this Analyst Blog.
While renewed Trump tariff threats may hurt China ETFs, Chinese economic policy easing may help ease the tensed situation.
The Franklin FTSE China ETF has a low expense ratio of just 0.19% and offers diversification by holding 956 stocks. The top ten holdings, which equal 44% of the assets, are heavily concentrated in the tech and financial sector, I'd like to see it more diversified. Holding ADRs and companies with VIE structure exposes investors to additional risks, which may be prevented by investing into stocks outside the tech sector listed on the Hong Kong Stock Exchange.
China ETFs have faltered lately after a stimulus-induced rally. What lies ahead for these ETFs.
FTSE Franklin China ETF has had a choppy 2024, with only a little over 1% increase YTD. FLCH is a well-rounded product with a lower expense ratio, more stability, wider stock coverage, and a better income angle compared to the most popular Chinese ETF. FLCH's top holding, Tencent, is expected to benefit from multiple tailwinds, including a pickup in mobile gaming, positive earnings growth, cheap valuations and compelling FCF generation.