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Home > Blogs > Ian Fraser > Roller-coaster ride for Chinese equities

Roller-coaster ride for Chinese equities

Finance Blogger: Ian Fraser Ian Fraser

With economic recoveries and stock market rallies in the developed world looking shaky, investors are increasingly turning their eyes eastwards to benefit from the continuing economic boom in China.

The latest to take the plunge is Anthony Bolton, the highly regarded British investor, currently president of investments at Fidelity.

So enthused is Bolton, 59, by the opportunities in China, he has come out of partial retirement and will relocate to Hong Kong to launch a new China-focused fund.

“I firmly believe that China is the investment opportunity of the next decade,” he said. “The center of gravity is shifting to this part of the world, and I want to play a bit of a part in it while I still have the chance.” He said he’ll be introducing his tried and tested “special situations” investment approach to the China market.

However, some commentators are warning that Bolton, whose fund will be launched in March 2010, may have come to the party too late. There are already signs that Chinese markets are a bit frothy with small cap price earnings ratios in the low 20s.

It may have a lot to do with the massive injections of government funds and bank credit since last September. The Beijing government has slashed interest rates five times since September 2008, introduced a $586 billion stimulus plan, lowered banks’ cash reserve requirements, and cut the one-year lending rate to a five-year low.

This has made it possible for Chinese banks to make new loans of $1.3 trillion, which may have had a lot to do with the 77% rise in Hong Kong’s Hang Seng China Enterprises index since January and the 74% surge in the Shanghai Composite Index over the same period.

However, there are already signs that the Chinese stock market is stuttering. Shanghai's dollar-denominated B-share index tumbled by 7.3% on November 24th and shares in the Macau-based casinos operator Sands China, which floated in a $2.5bn IPO on November 30th, fell by 10% on their first day of trading.

Bolton acknowledges that the bargain basement stage may be over but seems unfazed. Speaking on November 24th, he said that he does not believe that valuations are so expensive that “one should be more shy or more cautious.”

Overall he thinks that using his tried and tested value-based stock picking, he will be able to tap into equities that will benefit from the positive long-term scenario in China, fuelled by burgeoning domestic demand. He believes that Chinese consumers will start to run down their high savings as they aspire to own homes, cars, and household goods.

Bolton’s decision to relocate to Hong Kong follows that of Michael Geoghegan, chief executive of HSBC, which will relocate its headquarters to Hong Kong in January after a 16-year absence.

HSBC’s chairman Stephen Green recently told the Financial Times that the move is symbolic as well as practical. The move may also be an attempt to woo the Beijing authorities and ensure HSBC can become the first foreign company to list on Shanghai’s stock exchange.

In 28 years at the helm of the Fidelity Special Situations fund, which he ran from launch in 1979 until he stepped down from active investing in December 2007, Bolton achieved average annual returns of 19.5%, compared to 13.5% for the FTSE all-share index. Who knows if his two years in China (he has said he will hand over the fund after two years) will be as successful.

Tags: Anthony Bolton , China , HSBC , investments , relocation , stocks and shares
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