Investment Trust Insider on Fidelity China

Investment Trust Insider on Fidelity China – James Carthew: Fidelity China looks a ‘buy’ if crisis fears fade

A belated Happy Chinese New Year! The Chinese stock market has been on a rollercoaster ride since June 2017, when I last wrote about Fidelity China Special Situations (FCSS), yet its share price is about the same today as it was back then and the discount (12.7%) is also unchanged.

FCSS benchmarks itself against the MSCI China index and invests in growing companies with strong market positions and good corporate governance. The central tenet of its manager, Dale Nicholls, is that the Chinese government is encouraging a shift away from investment (construction of power stations, roads, railways, airports and the like) to consumption (the full panoply of consumerism) and consumption growth is being magnified by China’s expanding middle class (said to be as large as the entire population of the US).

They have been buying white goods, cars, apartments and foreign holidays but often they have been borrowing to do it. They are also heavily exposed to property prices which have stalled in several cities and are falling in some.

Reflecting Dale’s view, FCSS is overweight consumer discretionary stocks and the IT sector. Almost a quarter of the trust is invested in just two stocks, Tencent and Alibaba, yet it is underweight both relative to MSCI China – demonstrating these companies’ dominance of the index. The trust also has an overweight exposure to Chinese ‘A’-shares…   … read more here