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Fidelity taps into China’s consumers

Fidelity will this week launch an open-ended fund for investors seeking exposure to the growing Chinese commodities market.

The China Consumer fund will invest primarily in companies that either have their headquarters in China or predominantly exercise their operations in China or Hong Kong.

The fund will focus on companies involved in the development, manufacture and sales of goods or services to consumers in China.

Fidelity says the fund is unlikely to invest in banking or property stocks in the near future. This is to minimise potential exposure to recent credit tightening.

The Chinese government this month introduced several regulatory measures with the intention of curbing inflationary pressures.

One example was the introduction of restrictions related to buying property.

Permanent residents saw themselves limited to buying two properties, whereas all others have been restricted to buying one.

Between 80 and 120 China-based stocks will be held by the fund and the majority of companies in the consumer-related sector are privately-owned.

Privately-owned firms are subject to less de-regulation than state-owned enterprises based in China. The fund will have exposure to China A, B and H shares as well as red chips (Hong Kong-listed shares) and American Depository Receipts.

The lead manager on the fund is Raymond Ma, who will remain based in Fidelity’s Hong Kong offices. Ma joined Fidelity in 2006 as an investment analyst, and has since gone on to work as director of research and portfolio manager for the firm.

Although the fund will be open to British investors, it will be structured as a Luxembourg Sicav rather than an Oeic. The fund will also be denominated in dollars.

Fidelity says the Chinese economy is at a similar inflection point to that of Japan in 1969 and Korea in 1988.
Referring to the consumer trends that grew out of these two periods, Fidelity says China will soon see an increase in the consumption-to-GDP ratio.

Fidelity highlights five factors likely to trigger a rise in the consumption-to-GDP ratio.

These include governmental pro-consumption policies; robust economic growth and rising income; under-penetration of consumer goods and services; a consumption upgrade and urbanisation supporting strong consumer growth; and the changing consumption patterns of Chinese consumers.

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