Page 6 - DIY Investor Magazine - Issue 27

CAN CHINESE STOCKS CONTINUE THEIR STRONG RUN IN 2021?
The swift revival in China’s economic activity creates a fertile backdrop for its corporate sector.
Dale Nicholls, portfolio manager of Fidelity China Special Situations PLC, examines the investment opportunities ahead and explains how he is focusing on the structural trends accelerated by Covid-19.
Government stimulus has helped, but overall has been
more restrained and targeted than measures seen in most Western economies. This gives the Chinese government some remaining firepower if the Covid crisis reignites.
Chinese markets have ticked higher as investors have recognised the country’s stronger economic performance. Nevertheless, share prices continue to be at a significant discount to the US markets, despite arguably better growth prospects.
The return to “normality” in China should mean lower risks relative to those countries still struggling to get the virus under control. We still see many companies left behind by markets offering significant value.
WHICH RISKS ARE YOU MONITORING MOST CLOSELY?
Geopolitics and capital market reform are two areas to monitor. Throughout the year we have continued to see tensions rise between the US and China. These tensions are entrenched, but a more measured approach from the US side is likely under the new administration.
While the portfolio is largely focused on opportunities supported by ongoing structural shifts in China’s domestic economy, this is a useful backdrop. Capital market reforms in China include the loosening of short-selling restrictions, the lowering of foreign investment restrictions and the implementation of a registration-based IPO mechanism.
FIDELITY CHINA SPECIAL SITUATIONS PLC
The UK’s largest China Investment Trust, Fidelity China Special Situations PLC, capitalises on Fidelity’s extensive, locally-based analyst team to find attractive opportunities in a market too big to ignore.
Dale focuses on undervalued companies which have good long-term growth prospects which have been underestimated by the wider market.
He has a bias to small and medium-sized companies, where lower levels of research by competitors leads to greater opportunities for mispricing - but he is not constrained and may invest in large or mega-cap companies such as state-owned-enterprises where mispricing appears.
Visit the Fidelity China Special Situations PLC
ARE YOU OPTIMISTIC ABOUT THE YEAR AHEAD?
Definitely. Decisive action on the Covid-19 virus has supported economic recovery in China. Small localised outbreaks
have been dealt with deftly and without denting economic momentum. This is reflected in forward-looking economic statistics (such as Purchasing Managers’ Indices), which have recovered well ahead of other Asian and Western peers.1
Good performance from the services and exports sectors buoyed economic growth in the June to September period, with GDP rising 4.9%.2 The fourth quarter GDP figure of 6.5% exceeded expectations as key laggards in the service sector – travel and leisure – are gaining momentum.3
‘WE STILL SEE MANY COMPANIES LEFT BEHIND BY MARKETS OFFERING SIGNIFICANT VALUE’
DIY Investor Magazine | Mar 2021 6