Bolton on why China could lead next leg of bull market

Fidelity Investments’ Anthony Bolton is predicting a multi-year bull market with China leading the way.

The veteran manager is settling into his role as Britain’s most high-profile investor in China from his new base in Hong Kong where he has now bought a house.

Having built an unrivalled reputation in UK equities, he surprised the market last year by moving to Hong Kong and launching a China investment trust, Fidelity Chinese Special Situations. Months after launch it is trading at a healthy premium despite launching into a market correction.

Some wealth managers have argued against buying into the trust on the grounds that Bolton lacks experience in China and that in the inevitable sell-off in China the trust may move to a discount – presenting a better entry point into the story. However, he told Citywire this week that he is able to bring a unique focus to Fidelity’s Hong Kong-based China team and that the long-term investment case for China remains intact despite short-term risks.

He said he is settling in well. ‘I have been following China since 2004 but I’m not a China expert. The reason I moved to Hong Kong is that the team is here and they are experts. It is a combination of bringing my experience and what I have learned with the detailed knowledge of the local team.’

He is sympathetic to investors who struggle to perceive the trust as a buy at a premium. ‘I think this is a valid argument when it is selling at a premium. Whether it will sell again at a discount of course I do not know. When I look back at [the previous trust I managed] Fidelity Special Values, we had a pretty good record a lot of the time of staying at a premium. It may sell at a discount in future but it may be when the market is higher.’

Bolton has positioned his portfolio towards domestically focused Chinese stocks.

‘Previously manufacturing and exports were the drivers but that era is over. It will now be about the domestic economy and service sectors. We are big in retailing, sports goods, electricals, shoes and jewellery.’

He is also continuing his focus on small and mid-caps. He argues this remains an under-researched market in China that is ripe for exploitation.

China is beginning the monetary tightening process ahead of much of the world. Bolton argues this could well mean it leads the second leg of the bull market. ‘You could argue that because China is tightening before anyone else they might well relax measures ahead of anyone else and that could be the catalyst for China to lead the world.’

He believes investors remain too chastened by the aftermath of the credit crunch, predicting an unreasonably negative economic environment.

He said: ‘From the beginning I thought this was going to be a multi-year bull market but we needed a significant correction and we have been living through that.