Mark Dampier: Top stock-picker sees China consumer boom

The Analyst

During my career I have been privileged enough to engage with some of the brightest minds in the industry. Last week I was fortunate enough to speak with Anthony Bolton, manager of Fidelity China Special Situations Investment Trust. Mr Bolton's track record running the Fidelity UK Special Situations Fund is a rare example of a fund manager adding real value over the long term.

Upon announcing his return to fund management he guaranteed only a two-year tenure on the investment trust. This has since been extended for another year and if he carries on enjoying it as much as he seems to be he might stay longer.

No theme currently divides investment managers more than China. Some believe excess credit is fuelling a property bubble and the economy could be in for a hard landing. Since the IPO in April 2010 the stock market has been relatively flat, and remains around 30% below its high point. This hardly suggests a huge bubble. Credit growth was strong in 2010 and inflation has risen. This is currently being driven largely by food prices, which Mr Bolton expects to ease from the second quarter of this year. As a centralised economy the Chinese government has more control over prices and containing inflation than other countries. Political changes in 2012 also make aggressive policy tightening unlikely this year, according to Mr Bolton.

The most exciting thing for Mr Bolton is the number of companies he finds growing at 30% a year, although he stresses he won't invest unless the valuation is reasonable and he has conviction in the management. I questioned him at length on the subject of management. His experience running equities in the UK for 26 years has made him a good judge of management capability. He further points out that more Chinese management he is meeting are both educated and have worked in the West, which he believes are important factors. Mr Bolton has had 330 company meetings since arriving and he employs other companies to conduct extra due diligence. He says a third of meetings are done in English with the remainder in Mandarin (with a translator).

The next Chinese five-year plan has a strong domestic focus. Mr Bolton believes there are many companies that will prosper in this environment. His portfolio is therefore weighted towards the domestic economy; at services and consumption rather than commodities and exports. Around 9% is invested in pharmaceutical companies, against 1% for the index.

A company he is particularly positive on is United Laboratories. Diabetes is increasingly a problem in China as diets change and include more processed and sugary foods. United Laboratories has expanded into areas such as insulin production alongside its development of relatively boring, yet essential, antibiotics.

Anthony Bolton is a stock picker at heart, but it has to be said his macro calls have been particularly astute over the past few years. He strongly believes in the emerging market story, particularly in China, but points out that developed world growth is only likely to hit about 2% per annum. Although stronger than developed world counterparts, emerging markets are likely to have a tougher time if the West isn't firing on all cylinders. He therefore feels that the commodity story is unlikely to be as strong as it was over the past few years. He caveats that precious metals, such as gold, could be the exception, as he still sees problems with the world's leading currencies.

It will be interesting to see how the issue of new shares on the trust goes for Fidelity. The premium has come down, but buying the shares at net asset value is still relatively attractive. I am glad to see Mr Bolton committing to another year on the trust and I hope he and his wife continue to enjoy living in Hong Kong. Perhaps he will stay even longer. If so, this will be a huge benefit to shareholders.

Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.h-l.co.uk/independent

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