Mark Dampier: China domestic focus has not reduced the potential

The Analyst

I recently spent five days in China with the renowned fund manager Anthony Bolton. We went to three major cities, Hong Kong, Beijing and Shanghai, visiting 18 companies most of which he owns in his Fidelity China Special Situations Trust. It was a most insightful trip, which highlighted both the opportunities and the risks of investing in China.

Mr Bolton’s approach is precisely the same as it was at launch just over two years ago. He wants to own unloved, undervalued companies whose true potential is not widely recognised by the market. This has been his strategy throughout his career, most of which has been highly successful. His particular focus is on companies benefiting from domestic consumption in China, a part of the economy the government is keen to stimulate.

China’s story for the past 30 years has been its growing exports, but the authorities now recognise a need to rebalance; especially now wages are rising making low-cost manufacturing less competitive. Encouraging the frugal Chinese to spend rather than save will take time, although improvements to healthcare and social security are gradually taking effect.

Clearly this is an exciting trend for investors. Yet it is also a long-term one, and China is experiencing growing pains. Last year was a bad one for Hong Kong and China shares, with the market sharply down. It has been a strong tide for Anthony Bolton to swim against, especially with gearing in the fund of around 25 per cent, which exaggerates market movements, both up and down. To compound matters, small and medium sized companies, which make up much of the portfolio, were particularly badly hit.

Turning to some of the companies we visited, Anthony Bolton’s largest position is Ping An, the second largest insurance company in China. The shares underperformed last year as its life insurance division was hurt by weak equity markets. It employs 12,000 people in Shanghai and has the largest telemarketing operation in the world, with one million calls a day. It insures 32 million vehicles, yet there are still only just over 100 million cars in China against a population of 1.34bn, so the potential for the company is enormous.

I met many entrepreneurs on the trip, such as Zhang Xin, the CEO of the commercial  property company SOHO China, and one example of the many women in Chinese business with very senior roles. Property development is, of course, an area the Western press suggests is dead in the water. Yet all her buildings are fully occupied and rents rose by 50 per cent last year. Indeed, she said the market for offices was the best she had ever known. Ms Zhang did admit that retail property such as shopping malls is a much tougher area as consumer spending, while growing strongly, has not been enough to utilise the supply of retail space. SOHO trades at a 45 per cent discount to its net asset value, suggesting that sentiment could be a major factor in determining share prices presently.

Another company we visited was National Natural Beauty, whose objective is to become the leading national beauty chain in China. It has a five-year plan of shop roll-outs, and the one I visited in Shanghai would not have been out of place in Bond Street – and nor would the prices!

The company has no borrowings, is cash rich and yields 6 per cent with a policy of dividend growth. Profits surged by 275 per cent last year to HK$115m (£9.2m), and the company looks perfectly positioned to harness the rise of the Chinese middle class.

Interestingly, many companies like this are under-researched, mainly because you have to go into China to find them. International funds tend to buy only the big, well-known companies, so they potentially miss the most exciting opportunities. Anthony Bolton is, however, determined to uncover the best of them.

While the story on the ground looks exciting, the economic background ismore threatening. Money supply is contracting alongside industrial output. The authorities reacted last week by cutting bank reserve requirements, freeing up more capital to lend, but making the transition from an export-based economy to a domestic one is not going to be easy. Let’s hope the Chinese manage it. Otherwise attention could rapidly shift from the eurozone to Asia, with consequences for all markets.

Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. He spent five days in China as a guest of Fidelity. For more details about the funds included in this column, visit www.hl.co.uk

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Arts and Entertainment
Attenborough with the primates
tvWhy BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
News
Campbell: ‘Sometimes you have to be economical with the truth’
newsFormer spin doctor says MPs should study tactics of leading sports figures like José Mourinho
Sport
football
Life and Style
Agretti is often compared to its relative, samphire, though is closer in taste to spinach
food + drink
News
Kelly Osbourne will play a flight attendant in Sharknado 2
people
News
Down-to-earth: Winstone isn't one for considering his 'legacy'
people
News
The dress can be seen in different colours
i100
Sport
Wes Brown is sent-off
football
Voices
Lance Corporal Joshua Leakey VC
voicesBeware of imitations, but the words of the soldier awarded the Victoria Cross were the real thing, says DJ Taylor
Life and Style
Alexander McQueen's AW 2009/10 collection during Paris Fashion Week
fashionMeet the collaborators who helped create the late designer’s notorious spectacles
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: HR Benefits Manager

    £40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

    Recruitment Genius: Office Manager / Financial Services

    £30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

    Jemma Gent: Year End Accountant

    £250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

    Jemma Gent: Management Accountant

    £230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

    Day In a Page

    War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

    The battle for Mosul will unleash 'a million refugees'

    Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn
    Yvette Cooper: We can't lose the election. There's too much on the line

    Yvette Cooper: We can't lose the election. There's too much on the line

    The shadow Home Secretary on fighting radical Islam, protecting children, and why anyone in Labour who's thinking beyond May must 'sort themselves out'
    A bad week for the Greens: Leader Natalie Bennett's 'car crash' radio interview is followed by Brighton council's failure to set a budget due to infighting

    It's not easy being Green

    After a bad week in which its leader had a public meltdown and its only city council couldn't agree on a budget vote, what next for the alternative party? It's over to Caroline Lucas to find out
    Gorillas nearly missed: BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter

    Gorillas nearly missed

    BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
    Downton Abbey effect sees impoverished Italian nobles inspired to open their doors to paying guests for up to €650 a night

    The Downton Abbey effect

    Impoverished Italian nobles are opening their doors to paying guests, inspired by the TV drama
    China's wild panda numbers have increased by 17% since 2003, new census reveals

    China's wild panda numbers on the up

    New census reveals 17% since 2003
    Barbara Woodward: Britain's first female ambassador to China intends to forge strong links with the growing economic superpower

    Our woman in Beijing builds a new relationship

    Britain's first female ambassador to China intends to forge strong links with growing economic power
    Courage is rare. True humility is even rarer. But the only British soldier to be awarded the Victoria Cross in Afghanistan has both

    Courage is rare. True humility is even rarer

    Beware of imitations, but the words of the soldier awarded the Victoria Cross were the real thing, says DJ Taylor
    Alexander McQueen: The catwalk was a stage for the designer's astonishing and troubling vision

    Alexander McQueen's astonishing vision

    Ahead of a major retrospective, Alexander Fury talks to the collaborators who helped create the late designer's notorious spectacle
    New BBC series savours half a century of food in Britain, from Vesta curries to nouvelle cuisine

    Dinner through the decades

    A new BBC series challenged Brandon Robshaw and his family to eat their way from the 1950s to the 1990s
    Philippa Perry interview: The psychotherapist on McDonald's, fancy specs and meeting Grayson Perry on an evening course

    Philippa Perry interview

    The psychotherapist on McDonald's, fancy specs and meeting Grayson Perry on an evening course
    Bill Granger recipes: Our chef recreates the exoticism of the Indonesian stir-fry

    Bill Granger's Indonesian stir-fry recipes

    Our chef was inspired by the south-east Asian cuisine he encountered as a teenager
    Chelsea vs Tottenham: Harry Kane was at Wembley to see Spurs beat the Blues and win the Capital One Cup - now he's their great hope

    Harry Kane interview

    The striker was at Wembley to see Spurs beat the Blues and win the Capital One Cup - now he's their great hope
    The Last Word: For the good of the game: why on earth don’t we leave Fifa?

    Michael Calvin's Last Word

    For the good of the game: why on earth don’t we leave Fifa?
    HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

    Scientists hail daily pill that protects against HIV infection

    Breakthrough in battle against global scourge – but will the NHS pay for it?