Bolton exclusive: the challenges in China
One of the main challenges in investing in China is knowing who to trust, reveals Anthony Bolton in an exclusive interview with Moneywise.
The iconic fund manager who has been in Hong Kong managing Fidelity China Special Situations since April, says 95% of the people he did business with in the UK were trustworthy. In China, however, he says a “higher percentage of people are stretching the truth in one way or another”.
Bolton came back to active fund management at the start of this year to take advantage of what he felt was a unique investment opportunity in China and despite his misgivings he still feels there is money to be made in the region.
“There seems to be a sweet spot in emerging markets when the growth hits a point where people for the first time can afford cars etc. This lasts for 10-15 years and then the market is matured and it slows down,” he says.
Bolton uses many of the techniques picked up from a life of managing money in Europe to the same effect in China. “I have the advantage that I have seen lots and lots of companies over time and that sometimes gives me a different perspective,” he says.
Other fund managers have expressed concern that investors are going into China for the wrong reasons, and investing with Bolton could certainly show an element of this.
During his 27-year reign at Fidelity Special Situations, a UK-based open-ended investment company (OEIC), Bolton drove annualised returns of 19.5% compared to benchmark returns of 13.5% in the FTSE All-share.
And when he announced his return to active management with the launch of a China fund some advisers were sceptical, saying investors would follow Bolton into China based on his previous record rather than the suitability of their own risk appetite or portfolio.
But David Coombs head of multi-asset investments at Rathbone Unit Trust Management, is concerned about investment in China for other reasons: “China is an incredible opportunity in the long term, but western money (directly or indirectly) is being sucked in and not necessarily finding a smart home there,” he says.
“So far, the China consumer story has been played out to script, but aspirational spending will increasingly be problematic for China’s government,” he adds.
In fact Bolton shares some of Coombs' concern, but says it is not an imminent problem. “At the moment there are enough people who haven’t got consumer goods that still want them and are excited about them. But they will want more freedom and less censorship and that is going to be a challenge for China,” he explains.
Despite this, he doesn’t think the consumer story will be effected because he thinks the Chinese government know they have to support consumerism in order to shift from an export-based, heavily reliant economy.
“If I’m right about China – and like anything, predicting the future is a risk – I think it’s going to be the demand economy in Asia over the medium term,” he says.
“There is always pressure in this business and there is no automatic way to generate profit, but I didn’t want to be standing here in 10 years time thinking I could have done it,” he concludes.
To read the interview in full look out for the December issue of Moneywise, which hits the newsstand on 25 November.
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A collective investment vehicle (known in the US as a “mutual” or “pooled” fund) and similar to an Oeic and investment trust in that it manages financial securities on behalf of small investors who, by investing, pool their resources giving combined benefits of diversification and economies of scale. Investors buy “units” in the fund that have a proportional exposure to all the assets in the fund, and are bought and sold from the fund manager. The price of units is determined by the value of the assets in the fund and will rise or fall in line with the value of those assets. Like Oeics (but unlike investment trusts) unit trusts and are “open ended” funds, meaning that the size of each fund can vary according to supply and demand of the units form investors. Unit trusts have two prices; the higher “offer” price you pay to invest and the “bid” price, which is the lower price you receive when you sell. The difference between the two prices is commonly known as the bid/offer spread.
An individual employed by an institution to manage an investment fund (unit trust, investment trust, pension fund or hedge fund) to meet pre-determined objectives (usually to generate capital growth or maximise income) in prescribed geographic areas or investment sectors (such as UK smaller companies, technology or commodities). The manager also carries the responsibility for general fund supervision, as well as monitoring the daily trading activity and also developing investment strategies to manage the risk profile of the fund.
Generic, loosely-defined term for markets in a newly industrialised or Third World country that is in the process of moving from a closed economy to an open market economy while building accountability within the system. The World Bank recognises 28 countries as emerging markets, including Argentina, Brazil, China, Czech Republic, Egypt, India, Israel, Morocco, Russia and Venezuela. Because these countries carry additional political, economic and currency risks, investors in emerging markets should accept volatile returns. There is potential to make large profit at the risk of large losses.
A standard by which something is measured, usually the performance of investment funds against a specified index, such as the FTSE All-Share. Active fund managers look to outperform their benchmark index. Cautious fund managers aim to hold roughly the same proportion of each constituent as the benchmark, while a manager who deviates away from investing in the benchmark index’s constituents has a better chance of outperforming (or underperforming) the index.