It should come as no surprise that the preferred asset class of Asian investors has always been stocks. But with global stock markets in the doldrums, more and more are shifting into fixed income, much to the relief of U.S.-based asset manager Franklin Templeton's Greater China head, David Chang.

Mr. Chang, who has been with the firm for 12 years, has tracked how investors in Asia have matured over the years, but thinks much work still needs to be done for investors in the region to be better diversified in today's volatile market environment. Given Mr. Chang's interest in teaching -- he holds a master's degree in education -- it's little wonder that investor education underpins much of his strategy in the region.

Under his leadership, Franklin Templeton now has market shares of about 10% in Hong Kong and 20% in Taiwan. It also has a joint venture in Shanghai, Franklin Templeton Sealand Fund Management Co., with assets under management of $2 billion.

Mr. Chang spoke to Isabella Steger in Hong Kong about the changes in his industry in Greater China in the past decade, and the pace of financial reform in China. The following interview has been edited.

WSJ: What was Franklin Templeton in Hong Kong like when you first joined?

Mr. Chang: When I started 12 years ago here in Hong Kong, our assets under management was almost negligible, something like $150 million. Currently it stands above $9 billion. We patiently worked in Hong Kong for the first few years, then things started to fall into place. At first, it was a one- or two-product kind of company, including a U.S. government fixed-income fund. It was very concentrated and we had a lot of success.

WSJ: What was your role in the firm's growth in Greater China?

Mr. Chang: My first order of work was to diversify our product offering and our distribution channel. At that time the distribution was very limited to only a couple of international banks. Now we have more than 40 funds registered in Hong Kong. In the past we were pretty much just known as an emerging-market, equity expert, but one of my goals was to diversify because we did a lot more than just that. We diversified into fixed-income funds from there.

WSJ: What are some key characteristics of investors in Asia?

Mr. Chang: The investment horizon for Asian investors is relatively short, despite the fact that mutual funds are for long-term investment. A lot of education has to be done going forward. One major characteristic of investors in my region, even Asia in general, is the 'one or the other' mentality. Ten years ago it was only about equities. Right before the financial crisis, investors became more risk-averse and switched into fixed-income, and we enjoyed that change of trend as we had some very good fixed-income products.

We caught that tide for the next two years. People got burned during the financial crisis so they swung into fixed-income, despite the fact that we keep saying you need to diversify your portfolio and do your asset allocation. The swing was quite obvious for investors in Hong Kong and Taiwan.

WSJ: How have investment attitudes here changed since the financial crisis?

Mr. Chang: I think investors in Asia are still being very cautious, a lot are still staying with fixed-income funds. We saw a slight improvement in the past 12 months or so, but I wouldn't say it's significant. The only thing we're seeing is that investors are getting into income-oriented products, not just fixed-income. They want to see stable dividend-paying products as well. Because of the investor education we've done, some of our clients are at least diversifying.

WSJ: How did your firm emerge from the financial crisis?

Mr. Chang: We benefited from the trend [of investors shifting into fixed income] as a fund company, but I think in the long term, for the benefit of investors, we keep advocating diversification of portfolios. That's why we take the effort to do a lot of investor education via our learning academy.

WSJ: Do you feel any competition from exchange-traded funds here?

Mr. Chang: ETFs, whether you like it or not, are here to stay. It's going to be a permanent asset class. It makes sense to some clients as part of their portfolios, but we hope to remain an active-management company and use our global expertise to add value in producing alpha in the long term. We are seeing a growing trend of ETFs in Asia.

WSJ: Are you frustrated with the pace of financial liberalization in China's fund management industry?

Mr. Chang: I'm not frustrated at all. In the last two or three years, it's taken leaps and bounds. With a country as big as China, you have to be very cautious as decision makers in China. There are a lot of considerations they need to go through before they put together any regulations. I think they have moved very quickly in the last few years. Look at the QFII [Qualified Foreign Institutional Investor] and QDII [Qualified Domestic Institutional Investor] channels. Some foreign fund houses say they are opening too slowly, but they are opening a new channel and they need to be cautious. I think that time will come when foreign firms will participate. I think they're moving in the right direction and we are working very closely with regulators to the extent that we can contribute best practice.

WSJ: How competitive is the fund-management industry is in Hong Kong?

Mr. Chang: I welcome competition. There are something like 15 Chinese companies already opened here. It forces you to be more innovative. I always hope competition will enlarge the pie, rather than take market share from each other, so more investors will invest in funds, rather than fund managers having to fight with each other. It forces us to come up with new products, to be more nimble, to control costs better.

But the competition for talent worries me. We have a very limited talent pool in the industry. The whole of Asia faces this problem. We spend a lot of time on staff retention to keep talent.

WSJ: What are some of your priorities in China?

Mr. Chang: Investor education is a great channel to access China; that's why we're doing a lot more on that. We use our learning academy to do that. We train intermediaries like bank staff, and partner up with the WSJ in a leadership program where we do training at universities in Beijing and Shanghai. We started it last year and were very successful with the lectures and quiz competitions.

Isabella Steger