Franklin Templeton Buys China Stocks for First Time in Years Amid Valuation Opportunity

A Strategic Shift After Years on the Sidelines

Franklin Templeton, one of the world’s largest asset managers with over $1.6 trillion in assets under management, has resumed investing in Chinese equities after avoiding the market for several years. The move comes as valuations in mainland China and Hong Kong-listed companies hit multi-year lows, offering what some global fund managers now see as a deep value opportunity.

"For the first time in years, we are selectively adding Chinese stocks to our portfolios," said Stephen Dover, Chief Market Strategist at Franklin Templeton. "While structural concerns remain, we believe the market has overcorrected, presenting attractive entry points in key sectors."

The move marks a reversal from the cautious stance Franklin Templeton and other Western investment houses adopted after years of regulatory crackdowns, property sector turmoil, and geopolitical tensions that clouded China’s economic outlook.

Why Now? Undervalued Assets and Policy Signals

Several factors are behind the timing of Franklin Templeton’s shift. Chief among them are deeply discounted valuations. The MSCI China Index has declined over 45% from its 2021 peak, prompting comparisons with emerging market bottoms.

"The risk-reward ratio is tilting back in favor of patient investors," noted Emily Chu, an Asia strategist at BNP Paribas. "Despite macro headwinds, select Chinese companies—especially in technology, renewable energy, and consumer staples—are trading below book value and offer strong balance sheets."

Moreover, recent policy actions by Beijing to stabilize financial markets and revive consumer confidence have sent cautious yet encouraging signals. These include modest interest rate cuts, support for housing markets, and regulatory easing in technology and education sectors.

Focused Bets: Tech, Consumption, and Green Energy

Franklin Templeton is reportedly focusing its China investments on three core areas: leading technology platforms, domestic consumption plays, and green energy leaders. Analysts believe these sectors align with both China’s long-term policy goals and global growth trends.

"Rather than broad exposure, we are focusing on dominant players with strong governance and global footprints," said Dover. "Names in the electric vehicle battery space, advanced manufacturing, and consumer discretionary sectors stand out."

Despite the cautious tone, this targeted approach reflects a more refined risk management strategy compared to previous years when global funds broadly invested across Chinese markets.

A Cautiously Optimistic Global Trend

Franklin Templeton isn’t alone in reconsidering its stance on China. Recent filings show that other major asset managers, including BlackRock and Fidelity, have also been cautiously increasing their exposure. Foreign inflows into Chinese equities via the northbound Stock Connect have shown tentative improvement in recent months, although volumes remain below pre-2021 levels.

According to Morgan Stanley, foreign investors bought a net $4.2 billion worth of A-shares in May 2025, marking the first monthly net inflow since early 2024.

"Global capital appears to be tiptoeing back into China, though still far from bullish," said Jonathan Cheng, Head of Equities at HSBC Global Asset Management. "Selective bottom-fishing is underway, but broader sentiment hinges on regulatory stability and geopolitics."

Risks Remain: Geopolitics, Property, and Policy Uncertainty

Despite the renewed interest, significant risks continue to loom over the Chinese investment landscape. U.S.-China tensions remain high, especially over issues like technology restrictions and Taiwan. The property market, long a pillar of Chinese growth, is still grappling with liquidity challenges, and overall consumer sentiment remains weak.

"Investors are not turning a blind eye to risk; rather, they’re pricing it in," said Grace Tan, Chief Asia Economist at Barclays. "What we’re seeing is tactical reallocation, not a full-scale re-entry."

Franklin Templeton has emphasized that its renewed China exposure is limited and strategic, with built-in hedges and contingency models.

Outlook: A Slow, Measured Re-Engagement

The return of a heavyweight like Franklin Templeton signals growing confidence that China, despite its structural challenges, still offers one of the most compelling long-term investment stories. With global equity markets hitting all-time highs and valuations stretched in developed markets, investors are once again looking East for diversification.

"Our return to China is not about chasing short-term rebounds," Dover stated. "It’s about positioning for long-term value where the fundamentals and valuations justify the risk."

Investors and analysts alike will be watching closely to see whether this marks the start of a broader institutional re-engagement with Chinese equities—or merely a brief detour in an otherwise cautious global stance.