Mark Dampier: China domestic focus has not reduced the potential - Spend & Save - Money - The Independent

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; request a free guide on NISAs from Hargreaves Lansdown

News
Paper trail: the wedding photograph found in the rubble after 9/11 – it took Elizabeth Keefe 13 years to find the people in it
newsWho are the people in this photo? It took Elizabeth Stringer Keefe 13 years to find out
Arts and Entertainment
Evil eye: Douglas Adams in 'mad genius' pose
booksNew biography sheds light on comic genius of Douglas Adams
Sport
FootballFull debuts don't come much more stylish than those on show here
News
i100
PROMOTED VIDEO
Life and Style
Kim Kardashian drawn backlash over her sexy swimsuit selfie, called 'disgusting' and 'nasty'
fashionCritics say magazine only pays attention to fashion trends among rich, white women
Arts and Entertainment
TVShows like Agents of S.H.I.E.L.D are little more than marketing tools
Arts and Entertainment
Hit the roof: hot-tub cinema east London
architectureFrom pools to football pitches, rooftop living is looking up
Travel
travel
News
The ecological reconstruction of Ikrandraco avatar is shown in this illustration courtesy of Chuang Zhao. Scientists on September 11, 2014 announced the discovery of fossils in China of a type of flying reptile called a pterosaur that lived 120 millions years ago and so closely resembled those creatures from the 2009 film, Avatar that they named it after them.
SCIENCE
Life and Style
tech
Arts and Entertainment
Matisse: The Cut-Outs exhibition attracted 562,000 visitors to the Tate Modern from April to September
art
Life and Style
Models walk the runway at the Tom Ford show during London Fashion Week Spring Summer 2015
fashionLondon Fashion Week 2014
News
Kenny G
news
News
peopleThe black actress has claimed police mistook her for a prostitute when she kissed her white husband
Life and Style
techIndian model comes with cricket scores baked in
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

    SQL Developer - Watford/NW London - £280 - £320 p/d - 6 months

    £280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Senior BA - Insurance **URGENT**

    £400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

    Training Coordinator / Resource Planner - City, London

    £35000 - £38000 per annum + Benefits: Ashdown Group: Training Coordinator / Pl...

    Data Governance Manager (Solvency II) – Contract – Up to £450 daily rate, 6 month (may go Permanent)

    £400 - £450 Per Day: Clearwater People Solutions Ltd: We are currently looking...

    Day In a Page

    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    Exclusive extract from Janis Winehouse's poignant new memoir
    Is this the role to win Cumberbatch an Oscar?

    Is this the role to win Cumberbatch an Oscar?

    The Imitation Game, film review
    England and Roy Hodgson take a joint step towards redemption in Basel

    England and Hodgson take a joint step towards redemption

    Welbeck double puts England on the road to Euro 2016
    Relatives fight over Vivian Maier’s rare photos

    Relatives fight over Vivian Maier’s rare photos

    Pictures removed from public view as courts decide ownership
    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    Donatella Versace at New York Fashion Week