Mark Dampier: China domestic focus has not reduced the potential
Saturday 19 May 2012
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
- 1 Forget 'The Dress': Here are five of the biggest news stories you might have missed
- 2 The black and blue dress: Makers considering a white and gold version
- 3 PornHub turns masturbation into energy in bid to save the planet
- 4 The remarkable archaeological underwater discovery that could open up a new chapter in the study of European and British prehistory
- 5 Saudi Muslim cleric claims the Earth is 'stationary' and the sun rotates around it
New theory could prove how life began and disprove God
This is what it's like to be dead, according to a guy who died for a bit
'Cash for access' scandal: Sir Malcolm Rifkind says 'unrealistic' for MPs to live on £67,000 salary
'Jihadi John': CAGE representative storms off Sky News accusing Kay Burley of Islamophobia
Ukip would cut billions from Scottish budget to fund English tax cuts
Russia's roadmap for annexing eastern Ukraine 'leaked from Vladimir Putin's office'
iJobs Money & Business
£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...
£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...
£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...
£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...
Day In a Page
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads