Posted September 7, 2014 5:38 pm by Comments

Analysts on Dale Nicholls’ £657.6m Fidelity China Special Situations investment trust have recently examined four themes they expect to drive Chinese equity investing over the years ahead for an article in FE Trustnet. These themes are:

  1. Banks. Nicholls doesn’t see much investment potential in the Chinese banking sector, which has been blighted by raft of issues given worries such as a large number of non-performing loans, a mis-allocation of capital and rising leverage across the whole economy. Rebecca Jiang, one of Fidelity’s China-based analysts who has a cautious view on the Chinese banking sector, added: “To sum up, I think it’s difficult to justify investing in a bank, despite the seemingly cheap valuations.”
  2. Information technology. Nicholls notes that IT is an area which has experienced “a lot of growth” in recent years in China and its one of Fidelity China Special Situations’ largest overweights with a 24.2% allocation compared with 13.3% for the fund’s benchmark.
  3. Leisure travel. Fidelity China Special Situations’ largest sector bet is in consumer discretionary stocks, which account for 29.8% of the portfolio verses a benchmark weighting of just 5.3%. More specifically, Nicholls is investing in companies that will benefit from the rise of leisure travel among the Chinese consumer.
  4. Private education. Fidelity China Special Situations is also looking at the rise of private education in China and holds New Oriental Education & Tech Group (NYSE: EDU) – the country’s largest private education company. Fidelity analyst Monica Li commented:

“Twenty per cent of the Chinese population is below the age of 25, which means they spend a lot of time studying. They are not only studying in school but in after-school tutoring institutions so this is a huge market with annual sales of over 200 billion renminbi [£19.5bn] – too big to ignore. I think the best way to participate in this space is through investing in New Oriental.”

To read the whole article, The “best ideas” playing out in the Fidelity China Special Sits trust, go to the website of FE Trustnet.

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