FLCH: Leveraging China's Export Resilience and Undervalued Equities in a Geopolitical Downturn

In an era marked by geopolitical fragmentation and trade uncertainties, emerging markets have become both a battleground and an opportunity for investors. The Franklin FTSE China ETF (FLCH) stands out as a strategic vehicle for accessing China's evolving equity landscape, where export resilience and undervalued equities converge amid global volatility. This analysis explores how FLCH's structure, performance, and alignment with China's economic recalibration position it as a compelling option for investors seeking exposure to emerging markets while navigating geopolitical headwinds.

FLCH's Strategic Composition and Performance

The Franklin FTSE China ETF (FLCH) is designed to replicate the FTSE China Index, which includes large- and mid-cap Chinese stocks such as H-Shares, B-Shares, and A-Shares according to the FTSE Russell. As a non-diversified fund, FLCH allocates at least 80% of its assets to index components or their depositary receipts according to the FTSE Russell. This focused approach ensures concentrated exposure to China's most liquid and influential equities.

Performance metrics underscore FLCH's appeal. As of 2025, the ETF has delivered a year-to-date (YTD) total return of 35.12%, with a yield of 2.47% according to the FTSE Russell. Institutional confidence in the fund has surged, with 42 hedge funds and large institutions collectively investing $70.8 million in Q3 2025 according to Goldman Sachs. This institutional backing reflects a growing recognition of China's market potential despite macroeconomic headwinds.

China's Export Resilience: A Strategic Tailwind

China's export sector has demonstrated remarkable resilience in 2025, even as global trade tensions intensify. The FTSE China A50 Index, a key benchmark for the ETF, includes sectors like Automobiles and Parts as of November 2025. Chinese automakers, in particular, have gained market share in Europe, leveraging cost advantages and technological innovation according to Goldman Sachs. Goldman Sachs notes that Chinese deflationary pressures are expected to persist through 2027, further reshaping global supply chains according to Goldman Sachs.

This export-driven momentum is not isolated to autos. Sectors like chemicals and basic resources have also intensified competition, pressuring European counterparts to adapt according to Goldman Sachs. FLCH's exposure to these industries positions it to benefit from China's ability to maintain export competitiveness amid trade barriers.

Undervalued Equities: Valuation Metrics and Index Inclusion

The FTSE China A Inclusion Indices, which FLCH tracks, offer a gateway to undervalued equities. As of December 2025, the China Stock Market's P/E ratio stands at 10.86, deemed "fair" relative to its five-year average. The MSCI China A Inclusion Index, a comparable benchmark, has a P/B ratio of 1.91 according to MSCI, while the Vanguard FTSE Emerging Markets ETF (VWO), which tracks a related index, has a P/B of 2.4x according to Vanguard. These metrics suggest that Chinese equities are trading at a discount compared to global peers, offering attractive entry points for investors.

The FTSE China A50 Index, representing the 50 largest A-Share companies, has seen four additions in Q3 2025 according to FTSE Russell, reflecting ongoing adjustments to capture growth opportunities. This dynamic composition ensures FLCH remains aligned with China's evolving economic priorities, including the energy transition and technological innovation according to Franklin Templeton.

Navigating Geopolitical Risks: FLCH's Mitigation Strategies

Geopolitical risks in 2025-ranging from U.S.-China trade tensions to conflicts in Eastern Europe and the Middle East-have heightened supply chain fragmentation and regulatory complexity. FLCH mitigates these risks through diversification across sectors and regions, as well as by investing in companies with strong ESG practices according to Bridgehead Agency. Additionally, the ETF benefits from China's strategic realignment of its export engine toward Asia according to Seeking Alpha, reducing reliance on Western markets and insulating it from tariff-driven volatility.

FLCH's focus on the energy transition also aligns with global sustainability mandates, providing a buffer against geopolitical shifts in energy markets. By leveraging regional trade agreements and nearshoring strategies, the ETF reduces exposure to single-market risks while capitalizing on China's industrial strengths.

Conclusion: A Strategic ETF for Emerging Markets

The Franklin FTSE China ETF (FLCH) offers a compelling case for investors seeking to harness China's export resilience and undervalued equities amid geopolitical uncertainty. Its alignment with the FTSE China Index ensures exposure to key growth sectors, while its valuation metrics highlight attractive entry points. By mitigating geopolitical risks through diversification and ESG integration, FLCH provides a balanced approach to emerging market investing. As global trade dynamics continue to evolve, FLCH stands as a testament to the potential of strategic ETFs in navigating-and profiting from-today's complex economic landscape.