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Will the dragon bring good fortune in 2012?

22nd January 2012
Article from Easier Finance

With the year of the dragon in 2012 symbolising good fortune, is now the time for investors to be accessing China in their portfolios? Anthony Bolton, Portfolio Manager, Fidelity China Special Situations Fund, gives his outlook for China in the next 12 months and explains why opportunities still exist. Nick Price, Portfolio Manager, Fidelity EMEA Fund and Tom Ewing, Portfolio Manager Fidelity UK Growth fund, take an alternative view and share their thoughts on investing in China via an emerging markets fund or UK fund with international exposure.

Anthony Bolton, Portfolio Manager, Fidelity China Special Situations Fund: “It will become apparent in the next 12 months that the house-of-cards view that many have of China is wrong. We won’t see a hard landing and we won’t see growth disappear and that will lead to a reassessment of international views on China. It’s not going to be something that happens overnight but within 12 months I think the international view will change.

“Lower inflation in China creates a positive background for further monetary policy easing. GDP growth will be in the 7-8% range depending on how the international situation develops. Valuations are low and sentiment is still very cautious and my investment approach is to bet against these views. I am positive and bullish.

“My long-term thesis is that the China market will decouple from western markets. As we see a two speed world develop we will see money flowing into places where there can be growth.”

Nick Price, Portfolio Manager, Fidelity Funds Emerging Markets Fund: “China is a polemic topic for forecasters - some say that the country is heading for a hard landing and others say a soft. Quality economic data is often hard to obtain and the precise evolution of the world’s second largest economy remains difficult to predict. Regardless, China still offers a wealth of opportunities thanks to pockets of activity where businesses will continue to flourish. As stock pickers, we can avoid more economically sensitive areas of the markets such as housing developers, steel producers and industrial goods companies and instead focus on businesses with revenues underpinned by more structural growth drivers.

“Internet penetration is currently a mere 39% of the total population, in stark contrast to the US figure of 78%. China is expected to add an average 61 million users per year, roughly equivalent to the UK population, until 2015. This offers a huge opportunity for internet companies as well as smartphone providers that are increasingly responsible for connecting new users. We currently hold positions in internet search engine Baidu and social media platform Tencent. Both Baidu and Tencent have emerged as leaders in their respective fields and are continuingly reinvesting in their businesses to sustain their advantage.”

Tom Ewing, Portfolio Manager, Fidelity UK Growth Fund: “I run a growth fund and am constantly looking for good stories. I believe China is the greatest feel good story out there and I try to consider the implications for the world and for stocks in the UK in as broad and lateral a way as possible.

“I believe China is more than an investment theme, it is the most incredible thing going on in the world at the moment and the key development of the 21st century is the extent to which China can continue to grow and the political direction that it chooses to take. For me the frequent cynicism and fear in the West obscures a remarkable growth story where 1.3 billion people have got considerably richer and their quality of life has improved immeasurably.

“Overall, my aim has been to give the fund exposure to the burgeoning Chinese consumer mass market, where there are many opportunities and valuations are often attractive. In a world where growth opportunities are scarce, the Chinese development story is one that growth investors should continue to embrace.

“We are likely to see negative headlines on Chinese growth in coming months. The pace of Chinese loosening is political and therefore difficult to call. But as a senior US economist based in Beijing said, ‘Don’t ever bet against China. They always surprise on the upside’.”

Article from Easier Finance

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