Anthony Bolton’s Fidelity China Special Situations investment trust has ended its first full year ahead of its benchmark, with the manager downplaying the tough conditions present in China.
In the year to March 31, 2011, the fund’s net asset value per ordinary share increased by 5.24 per cent from 99.01p to 104.2p. This is above the 3.3 per cent rise in its MSCI China benchmark.
Bolton notes the NAV has eased from being up 15 per cent in October last year to its current level and concedes that performance since then has been “disappointing”.
“Like any investment proposition, China is not without risks but I continue to believe that the case for investing is compelling,” he adds.
Bolton highlights the high level of inflation as one of the most pressing concerns for investors in China, claiming that its actual level is likely to be above the government’s official estimate of 5.4 per cent.
However, he argues this will not stop the country’s bull market unless inflation “gets completely out of control”.
The fund manager also predicts that the Chinese government will be successful in its attempt to create a “soft landing” for the economy and expects its growth levels will remain attractive when compared to developed markets.
Other risks Bolton notes include the bad loans created by two years of rapid credit growth and suspicion of a bubble in the property market.
But he dismisses both of these, saying the central government will support local authorities to cope with any bad loans and long-term demand for property appears to be favourable.
Bolton is less positive, however, about the risks created by the political situation in Korea. To safeguard against the effect of continued hostilities between the north and the south, the manager has protected about 25 per cent of the fund’s gross assets by purchasing out money put options on the Korean index.
“Like any form of insurance it is something that I hope will not be needed,” he concludes.