Fidelity China special situations fund manager Anthony Bolton has revealed that his fund suffered losses after two investments in US-listed Chinese companies were accused of fraud.
According to reports, Bolton says his team are now spending more time on due diligence after they underestimated the risks of investing in China. Bolton’s fund raised £460m when it launched in April 2010, about 15 per cent of his portfolio is listed in the US.
Bolton has liquidated the funds’ holdings in several reverse-merger stocks at a loss, including the two accused of fraud. One company, China Integrated Companies, lost 90 per cent of its value after it was accused of fraud by short-sellers and its auditor KPMG resigned. The company, which is listed on the Nasdaq, has denied the allegations and has started an independent investigation.
Hundreds of Chinese companies have joined North American stockmarkets in the last few years by acquiring shell companies that were already listed. This allows them to bypass the scrutiny of an initial public offering.
Bolton says: “They are not all frauds. I think this will turn out in hindsight to be a fantastic opportunity for buying some of the other reverse-merger companies which are the real ones.” He would not name the other company involved and said the losses represented a small part of his overall portfolio.
Hargreaves Lansdown senior analyst Meera Patel says: “Anthony is a great manager who has seen a good six-month period followed by a difficult six-month period. He has had hard times before but he has conviction in China and he will follow it through and make it a successful proposition for investors.”