Is China a spent investment story or do you feel it's a place to be investing your money?
In 2008 I sold out of China (and Asia for that matter) and bought back again in May 2009. I'd had a great run for four years to 2008 but saw the noise around oil as a real threat.
Anthony Bolton, the long standing guru of the well renowned Fidelity Special Situations Fund, is a firm favourite of China. He relocated to China in March this year to run his own fund.
He fully invested his new Â£471m fund and I'll share his views with you.
He believes China to be a fascinating place with exciting stories and opportunities. One of the biggest benefits of China for him is the lack of information available.
In the UK you have hundreds of broker notes telling you everything you need about a company or stock. Because of this, the stock market is very efficient at calculating a price on a stock and delivering that price to investors. That information is also annoyingly useful to crush a stock's price given the speed at which it is delivered.
If there is a lack of information (he points to broker notes on a company being nine months old) opportunities are missed by the market and he gets the benefit by an undervalued price.
The reverse is also true however as quality information means you can cross check any noise you are being offered.
Here Bolton has been clear with his brokers as to what information he wants from them and this research will be essential in giving him a leading edge against other managers and the market.
Bolton believes the main economic drivers in China are now turning away from export led manufacturing and down to domestic drivers such as department stores, sports goods, electrical goods, shoes, jewellery. Up to now the economy has thrived on exporting to the rest of the demanding world. China is changing with more demand for restaurants, mobile phones, wines, cars, hotels as well as the financial sector.
Bolton has also noticed that many Chinese stocks trade at quite a discount to a UK equivalent which doesn't even have the same growth potential.
He is also much more comfortable with Chinese state owned enterprise than before. He had always tried to avoid them but has seen them as more secure now than before. Whilst the potential for as much upside return mightn't necessarily be there, a change is occurring in China which is supporting these organisations where management are being incentivised relative to the share price of the company.
This is best described as a phenomenon.
Bolton has been surprised that more than half his exploratory company meetings for research have been held in English.
On the tightening of the Chinese economy applied by the Chinese government, Bolton has commented that it had a delicate balance, in that too much tightening could wipe out growth completely, but too little could create an enormous bubble and uncontrollable inflation.
It has had the desired effect taking the Chinese growth story down from a 10-12% growth range to just under 10% (phew!). (1)
The Chinese government were early into the tightening process and the dramatic changes' impact have led Bolton to believe they might loosen monetary policy toward the year end, creating a catalyst for further growth.
Bolton believes we are heading for sustained low growth in the west as opposed to a double dip in the economy. He feels China is in for a multiyear bull market and that the current lull is in fact a little consolidation in the market and prices. We'll see.
My own view is that it’s riskier to not hold China than it is to hold it. I would recommend an investor holds the appropriate amount according to the level of risk they are comfortable with.
Remember that a fund invested into the Asia excluding Japan sector can easily move c30% either way in a quarter as we have seen in the last two years.(2)
For a fact sheet on the top performing Chinese funds call Peter on 0845 230 9876, e-mail firstname.lastname@example.org
(1)Â Â Â Â Investment Week
(2)Â Â Â Â Lipper
Peter McGahan is an Independent Financial Adviser and the Managing Director of Worldwide Financial Planning Ltd who are authorised and regulated by the Financial Services Authority. 'The FSA does not regulate Credit Cards, Will Writing and some forms of mortgage and Inheritance Tax Planning.'