CONTRIBUTORS
Dina Ting, CFA
Head of Global Index Portfolio Management,
Franklin Templeton ETFs
Amid the technology sector’s summer rebound, we encountered some chatter about a new nickname (Wall Street loves nicknames) that may or may not stick—China’s Prominent 10. Like the Magnificent Seven,1 the “Prom 10” is what Goldman Sachs analysts are calling China’s own power bloc of giant, public-owned enterprises that appear well-positioned to help drive growth and innovation. The corporations span sectors and industries including e-commerce, gaming, media, biotechnology, smartphones and electric vehicles.
What makes the Prominent 10 notable isn’t just their scale or sector reach—but their relatively modest market share. Together, they represent just 17% of China’s total market capitalization, versus far higher concentrations in markets like the United States or Germany.2 The group’s alignment with national policy priorities, including artificial intelligence (AI), consumer technology and global competitiveness, positions them at the forefront of China’s next phase of modernization.
After three straight years of losses (2021–2023), the FTSE China RIC Capped Index is showing signs of a fragile recovery, now up more than 18% in US dollar terms year-to-date through June 26, 2025.3 This is being led by gains in the communications, financials, tech and health care sectors that are prompting investors to shift from China caution to curiosity.
Markets were buoyed recently after the confirmation of a US-China trade framework deal to allow rare-earth exports from China and an easing of US tech restrictions. Of course, a volatile trade environment and US-China tech decoupling may continue to pose challenges for Beijing. Consider, however, that even with World Bank global growth expectations now at 2.3%—a 20-year low outside of major crises—China’s growth forecast remains stable at 4.5%.4
Funding talent
A key driver of China’s progress is its deepening investment in talent and education, particularly in AI and other strategic fields. China’s Ministry of Education has launched a broad campaign to integrate AI education across not just its top-tier universities but also vocational institutions and secondary schools, which stands in contrast to the United States’ unusually strained relationship now between the federal government and higher education institutions. University AI programs in the United States are reportedly experiencing more restrictive federal funding conditions this year and, in several cases, are facing abruptly frozen or canceled National Science Foundation funding for researchers.
According to Stanford University’s 2025 AI Index Report, there has also been a noteworthy reduction in the performance gap between the top AI models of the United States and China—a mere 0.3%. While the United States maintains its lead in quantity, Chinese models have rapidly closed the quality gap: In 2023, China’s top models lagged the United States’ by nearly 20 percentage points in several benchmark tests. Just one year later, this gap has narrowed substantially.
The progress, analysts say, stems from a coordinated national strategy, accelerated investment in AI education and deep integration between state-backed firms and research institutions that are enabling faster commercialization of AI across sectors. In one quirky example, a leading mobile payments and lifestyle app in China has deployed a tool that can help users detect hair loss!
China’s capital expenditure on AI is set to reach upwards of nearly US$99 billion this year, reflecting a surge of 48% over 2024.5 More than half of this funding is expected to come from government sources. Meanwhile, public sentiment is notably more AI-positive in China. Edelman’s 2025 Trust Barometer found that 72% of Chinese respondents say they trust AI, compared to only 32% in the United States—a confidence gap that underscores differences in regulatory environments, infrastructure and cultural adoption.6
In AI They Trust
2024 Study: Percentage Share of Adults Surveyed Who Say They Trust AI Technology
Source: 2025 Edelman Trust Barometer.
Market valuations
Beyond the AI realm, we believe Chinese equity valuations are still reasonable. China’s market (as measured by the MSCI China Index) currently trades at 12.5x forward earnings—below its 10-year average (13.9x) and at a steep discount: 53% to India (as measured by the MSCI India Index), 31% to Taiwan (as measured by the MSCI Taiwan Index) and 18% to the broader emerging market index (as measured by the MSCI Emerging Markets Index).7
This relative undervaluation, paired with an uptick in initial public offering (IPO) activity and tech leadership, makes a strong case for re-engaging with broad China exposures. Hong Kong’s capital markets, long subdued by regulatory uncertainty and sentiment shocks, have also staged a comeback. This indicates to us a resurgence of private sector confidence and a revival in investor demand. We believe that broad China exposures, including both A-Shares and offshore-listed securities, provide a comprehensive opportunity to participate. Given Beijing’s recent progress in US trade negotiations, China’s equity market may finally be transitioning to a more compelling value opportunity, in our analysis.
Diversified Exposures Have Outperformed A-Shares
December 2024–June 2025
Source: Bloomberg. Broad China = FTSE China 30/18 Capped Index, China A = MSCI China A Onshore Index. The FTSE China 30/18 Capped Index represents the performance of Chinese large- and mid-capitalization stocks. The index has a broad coverage of Chinese share classes include A Shares, B Shares, H Shares, Red Chips, P Chips, S Chips and N Shares, where the A Share constituents are available to international investors through Northbound China Stock Connect Scheme, eligible under the scheme’s Buy-And-Sell List. The MSCI China A Onshore Index captures large- and mid-cap representation across China securities listed on the Shanghai and Shenzhen exchanges. Past performance is not an indicator or a guarantee of future performance. Indexes are unmanaged and one cannot invest directly in an index. Important data provider notices and terms available at www.franklintempletondatasources.com.
Volatility is still part of the equation, but for investors with a long-term view and appetite for near-term swings, we believe current entry points may offer potential upside. After years on the sidelines, diversification through Chinese equities may again earn its place in global portfolios.
Endnotes
- The Magnificent Seven comprises Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA and Tesla.
- Sources: FactSet, Goldman Sachs Global Investment Research, “The comeback of Chinese POEs (Part 2): Why large POEs are getting larger.” For China, universe is total listed market cap across the A-, H- and ADR markets including Hong Kong.
- Source: Bloomberg. The FTSE China RIC Capped Index represents the performance of Chinese large- and mid-capitalization stocks. Securities are weighted based on their free float-adjusted market capitalization and reviewed semi-annually. Past performance is not an indicator or a guarantee of future performance. Indexes are unmanaged and one cannot invest directly in an index. Important data provider notices and terms available at www.franklintempletondatasources.com.
- Source: World Bank, June 2025 issue of the China Economic Update.
- Source: “China Matters (H/A) | 04 June 2025.” BofA Global Research. June 3, 2025.
- Source: Edelman Trust Barometer, 2025.
- Source: Bloomberg, 2025. The MSCI China Index captures large- and mid-cap representation across China A shares, H shares, B shares, Red chips, P chips and foreign listings (e.g. ADRs). The index covers about 85% of this China equity universe. Currently, the index includes Large Cap A and Mid Cap A shares represented at 20% of their free float-adjusted market capitalization. The MSCI India Index is designed to measure the performance of the large- and mid-cap segments of the Indian market. With 158 constituents, the index covers approximately 85% of the Indian equity universe. The MSCI Taiwan Index is designed to measure the performance of the large- and mid-cap segments of the Taiwan market. With88 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in Taiwan. The MSCI Emerging Markets Index captures large- and mid-cap representation across 24 emerging market countries. With 1,203 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. Past performance is not an indicator or a guarantee of future performance. Indexes are unmanaged and one cannot invest directly in an index. Important data provider notices and terms available at www.franklintempletondatasources.com.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Equity securities are subject to price fluctuation and possible loss of principal. Small- and mid-cap stocks involve greater risks and volatility than large-cap stocks.
International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Investments in companies in a specific country or region may experience greater volatility than those that are more broadly diversified geographically. The government’s participation in the economy is still high and, therefore, investments in China will be subject to larger regulatory risk levels compared to many other countries.
Diversification does not guarantee a profit or protect against a loss.
Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.
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