Fidelity’s Bolton Says China Hard Landing Unlikely, Sees Value in Stocks
Thursday, 19 January 2012 | 00:00
China’s slowing economy is unlikely to have a hard landing and cheap stock valuations may pave the way for "a big move" in Chinese markets, said Anthony Bolton, who manages the Fidelity China Special Situations Fund. (FCSS)
Economic growth in China may slow to between 7 percent and 8 percent this year, Bolton, president of investments at Fidelity Worldwide Investment, which manages or administers $208 billion of assets, told reporters in Hong Kong today. Fidelity is now favoring companies that will benefit from discretionary consumer spending, Raymond Ma, manager of Fidelity’s China Consumer Fund, said at the same briefing.
Annual growth of 7 percent this year would surpass the World Bank’s estimate for the global economy to expand 2.5 percent. Data yesterday showed China’s economy grew 8.9 percent in the fourth quarter, the slowest pace since 2009, though faster than the 8.7 percent median forecast in a Bloomberg News survey of 26 economists.
“What I see is very attractive valuations today in China against history,” Fidelity’s Bolton said. “It will become apparent in the next 12 months that the house of cards view of China that some international investors have is going to be wrong. That will lead to quite a reassessment of the international views on China.”
The Shanghai Composite Index slumped 22 percent last year as China’s central bank raised interest rates and banks’ reserve ratios to curb inflation. The index trades at 9.3 times estimated earnings, near the record low of 8.8 times reached on Jan. 5, according to data compiled by Bloomberg.
Full-year economic growth slowed to 9.2 percent last year from 10.4 percent in 2010, the statistics bureau reported yesterday. Premier Wen Jiabao said earlier this month that monetary policy will be fine-tuned to help businesses as they face a “relatively difficult” first quarter of 2012. The People’s Bank of China cut lenders’ reserve requirements in December for the first time since 2008.
The Shanghai Composite (SHCOMP) jumped 4.2 percent yesterday, the most since October 2009, as the economic data boosted expectations for further monetary easing and speculation grew the government will support equities. The gauge was the worst performer among the world’s 15 biggest markets in the two years through 2011 with a 33 percent drop.
Chinese authorities may further ease credit tightening after inflation, particularly food price increases, slowed recently, said Stephen Ma, manager of Fidelity’s China Opportunities Fund and Taiwan Fund. Companies in China still plan to raise salaries for workers amid slowing growth, which will boost consumption, according to Raymond Ma.
Bolton’s Fidelity China Special Situations Plc tumbled 38 percent last year, compared with a 20 percent decline by the MSCI China Index.
The China fund’s performance was hurt by its focus on small- and medium-capitalization stocks that tend to experience sharper falls in a market downturn, said Bolton. Stock swings were more extreme and the challenges faced by some companies more serious than he had expected, he said.
During the 28 years he managed as much as $12 billion running the U.K.-focused Fidelity Special Situations fund, Bolton delivered average annual returns of 19.5 percent, transforming a 10,000 pound ($15,338) investment in 1979 into 1,494,118 pounds in 2007, according to Morningstar Inc.
The Financial Times reported in August that Bolton had suggested he may not stay as the manager of the China special situations fund after April 2013. Bolton said today he may make a decision in the first half of this year about whether to stay on beyond that date as manager of the fund.