The MSCI China Index trades at 9.4 times their projected earnings for the year ahead, roughly half the level commanded by the S&P 500 Index. That follows a protracted downdraft in Chinese stocks, with the MSCI gauge set for a third annual loss. The S&P 500, meanwhile, has gained by double digits this year.

“At these kinds of valuations, I’m very happy to see out some of the shorter term volatility,” said Nicholas Chui, a portfolio manager for Franklin Templeton’s marquee China fund. 

The fund’s return has tumbled alongside the broader market, but the drop means it can selectively target growing companies at a compelling price, according to Chui. “It’s allowed us to take a longer-term view and to take advantage of longer-term themes at a discount.”

The fund had Tencent Holdings Ltd, Alibaba Group Holding Ltd and Baidu Inc among its largest holdings, according to the fund’s fact sheet as of end-October. It has lost about 17% this year during the period in dollar terms, the statement showed. 

Seasonal momentum is also on bulls’ side. Chinese stocks tend to rise through November to January, with the yuan also getting a year-end boost as exporters need more local currency to meet cash demand.

Analysts at institutions including Guotai Junan International and Australia & New Zealand Banking Group see the currency strengthening to near the crucial 7-per-dollar level, recovering most of the losses incurred in 2023. 

But even among China optimists, there is less conviction over how strong and sustainable of a rally they expect. The emerging consensus is that while assets may rebound from here, returns will be lower than before as perennial tensions with the US and President Xi Jinping’s grip on the private sector will temper financial market gains.

All things considered, Chang Hwan Sung, a portfolio manager for Invesco Ltd’s investment solutions business, believes it’s difficult to have an underweight position on China.

“Given dividend yield and valuations, there is not much downside,” to owning Chinese shares, said Sung. He is also bullish on dollar-denominated corporate debt issued by the country’s tech and industrial companies, holding an overweight position on investment-grade notes while still shunning the high-yield market dominated by developers.

China’s investment-grade bonds have gained 4.3% this year, on track to end two consecutive years of losses, according to a Bloomberg index. Securities issued by major tech giants and industrial firms are among the best performers. A dollar bond sold by a unit of Xiaomi Corp maturing in 2051 returned roughly 18% this year, while Lenovo Group’s note due in 2032 has generated about 13%.