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The Real China Opportunity Is In A-Shares

A-Share market provides true access to China’s growth potential

The securities markets for companies incorporated on mainland China are segmented into onshore and offshore.

The onshore market primarily comprises A-shares, listed in Shanghai and Shenzhen.

The depth of the A-Share market also provide a source of diversification to investor’s portfolio.

Depth and Breadth of Onshore and Offshore China Equity Markets (Number of Securities)

  Shanghai
A-Shares		 Shenzhen
A-Shares		 China Stocks Listed
in Hong Kong		 China Stocks Listed
In US*

Number of Securities

 2,189 2,765 1,423 239

Market Capitalisation (USD trillion)

 7.2 5.1 3.7 0.8

Average Daily Turnover (USD billion), 12-month to 31 March 2023

 55 74 17 4

Sources: Bloomberg; Shanghai Stock Exchange; Shenzhen Stock Exchange; Hong Kong Stock Exchange as of 31 March 2023.
*Average daily turnover for China stocks listed in US was calculated for 6M to 31 March 2023.

Why China Equity Now?

Undervaluation of China equity

  • Relatively low valuation level compared to historical average, which presents buying opportunity with good upside and limited downside risk.

 

Price-to-Earnings Ratio of China Equity Listed in Shanghai Stock Exchange

Sources: Analysis by Franklin Templeton Institute, Bloomberg, Shanghai Stock Exchange as of 17 April 2023.

 

Liquidity

  • Domestic household asset reallocation from real estate and savings to equity market is gaining traction.
  • Foreign participation in the equity market is still low (4% of the total market cap of China A-share market), but inflow is expected to rise due to index inclusions.

The Key is Local Know-how & Know-who

Monetising China A-Share opportunities requires on-the-ground experts

Franklin Templeton Sealand Fund Management Co., Ltd.

  • Established in 2004 as a Shanghai-based joint venture (JV)1.
  • Award-winning company (over 50 awards) with experience in managing China A-shares portfolio since 2006.
  • Bottom-up fundamental stock picker and contrarian-biased research process, with high-conviction portfolio.
  • On-the-ground investment team of 42 including 9 equity portfolio managers and 14 equity analysts2.
  • Backed by a global asset manager, Franklin Templeton,1 and a full-fledged corporate governance and risk management framework integration.

Strengths compared to global investment managers

  • Deep onshore presence with a strong network in China.
  • China-based investment team that understands local nuances.
  • Our team can identify early trends, opportunities and risks, aided by deep understanding of local regulations and policies.

Strengths compared to onshore investment managers

  • Long-term, bottom-up fundamental and contrarian-biased investor.
  • Typically lower portfolio turnover compared to peers.
  • Growth-at-a-reasonable price (GARP) investment strategy to achieve long-term capital appreciation.
  • Backed by a global asset manager,1 Franklin Templeton, with strong risk and compliance process integration.

1. Franklin Templeton owns 49% of Franklin Templeton Sealand Fund Management Co., Ltd. via joint-venture (JV) partnership.
2. Data as of 31 December 2022.

 

 

Franklin Sealand China A-Shares Fund

Fund highlights

  • Growth potential and market depth of the China A-Shares market.
  • Improved liquidity and market access in China onshore market.
  • China A-Shares market is one of the best places to generating consistent alpha.
  • Growth-at-a-reasonable price (GARP) strategy to achieve long-term capital appreciation.
  • Managed by experienced investment team based in China with strong network, who speaks the local language, understands local nuances, as well as the rapidly changing economic cycles, aided by a deep understanding of China’s regulations and policies to better capture opportunities and identify risks.

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