Templeton Dragon Fund (TDF) Stock

China's stock market faced challenges in 2022 and 2023, while the consumer market continued to expand and evolve.

China has implemented actions to boost its economy and prevent the decline in Chinese stocks through both fiscal and monetary measures, in contrast to the US' tight monetary policy. The gradual improvement in China's economy is promising, as Q1 2024 GDP growth has surpassed predictions. Chinese tech giants such as Alibaba are currently trading at historically low prices and P/E ratios, offering possible investment prospects.

Templeton Dragon Fund has commenced an issuer tender offer to purchase up to 25% of its common shares at 98% of NAV. The tender offer is a generous one and originates from City of London Investment Management Company instead of the usual activist players. CLIM holds a significant stake in TDF and has made a deal with management to secure the tender offer.

Templeton Dragon Fund has made some key changes in reaction to its recent underperformance. Not much has changed performance-wise, though, as TDF's newly rebalanced portfolio has drawn down alongside the broader market. While the upcoming tender offer is a positive step, it isn't needle-moving and likely won't be enough to reverse this year's downtrend.

The Templeton Dragon Fund is recommended as a contrarian play on China's recovery, as the Chinese economy has been slowly recovering, despite recent volatility. China does not have an inflation problem, giving the government and central bank the capacity to stimulate the economy if needed. Risks to the bullish call include a potential US recession and deteriorating US-China relations, but the author believes the current bust phase is near its nadir.

The Templeton Dragon Fund invests in Chinese companies for long-term capital appreciation, with a focus on growth companies. The fund has underperformed recently, with concerns about China's economic recovery and sustainability of consumer demand. The fund's discount to NAV is around 15%, but recent management changes and fee reductions may not be enough to close the gap.