25th November 2013
For the past week, I’ve been in Hong Kong courtesy of Fidelity and Associated Newspapers (two big thank you’s).
It’s been a fascinating experience. I haven’t been out East – well no further east than London’s Docklands – since the early 1990’s.
Although my memory may be playing me tricks, not much has changed in Hong Kong (of course, the same cannot be said of mainland China). The Star ferry still chugs along, transporting people from Hong Kong Island to Kowloon and back again while the taxis remain dirt cheap (take note, London cabbies).
Yes, there are a few more office blocks – higher ones – than there was and a spanking new airport which must be the envy of Heathrow. And a bit more land has been reclaimed from the sea so that it can be built on. Yet the fact remains that Hong Kong is an invigorating place to visit. Money seeps from its pores.
I was there to learn about Fidelity’s modus operandi in the Far East and to meet some of the company’s talented pool of fund managers – the likes of Teera Chanpongsang who takes over management of the South East Asia fund at the beginning of next year and Dale Nicholls (heir apparent on the China Special Situations investment trust).
It was all educational and conclusive evidence that Fidelity is the most professional of asset managers out east, with a commitment to growing its own pool of wannabe fund managers through an academy programme.
In fact, probably the most enjoyable moment of my Hong Kong trip was with Mark Skurnik, director of research for China focused analysts. As well as doing his day job, Skurnik is chomping at the bit to become a fund manager which means he has been given a pot of Fidelity money to manage. If he can prove he can manage this money effectively, he will be given a proper retail fund to manage. In effect he will have made it.
I watched Skurnik for a day while we travelled to Shenzhen to visit a couple of Chinese companies.
Not an hour went by without him checking the progress of his portfolio on his mobile. Aussie or no Aussie, I really hope he makes the grade – he’s one dedicated individual.
What did I learn on my trip? That Japan remains an investment opportunity despite concerns over the effectiveness of ‘Abenomics’. Fidelity’s view – well that of Alexander Treves, head of Japanese equities – is that market valuations relative to other developed markets look attractive with room for future earnings upgrades. It’s a view shared by others – including Tom Becket, chief investment officer at asset manager Psigma.
And that China is for the very bravest of investors. While I was out there, news of the outcome of the Third Plenum started to filter through, The Plenum, attended by Communist Party grandees, determines the policies that will be pursued for the next 10 years. And once some of the detail spewed out, most asset managers were more positive than negative.
Certainly, it brought a smile to the face of Anthony Bolton who for more than three years has been trying to prove that the China Special Situations investment trust he launched in April 2010 was merited. For most of Bolton’s tenure, China has given him and his loyal shareholders nothing but grief. It is only in the last 12 months that things have begun to improve with the trust’s shares finally spiking above their launch price.
The Third Plenum, maintains Bolton, has transformed the investment case for China. If all the proposals are implemented, private companies will be given greater opportunity to flourish; the detested one-child per family policy will be ripped up; and the state owned enterprises that dominate China’s economy will be reined in. There’s more that he likes – for example, the ending of the Laojiao system that allows people to be detained for minor crimes without any court trial – but the overall message is clear. The Third Plenum is good news for investors with exposure to China.
Bolton says all this knowing that come April he will step down and hand over the reins of China Special Situations to Mr Nicholls.
Would I invest in China? Yes, but probably not through a single country fund. For all the talk of reform, China still has big issues to address. These include a housing market threatening to bubble up; local governments up to their necks in debt; a banking sector that is financially challenged; a big pollution problem; and an economy overly dependent upon both state owned enterprises and infrastructure spending.
As Schroders, based within walking distance of Fidelity’s offices, told me, there is likely to be plenty of pain in the medium to long term while the economy adjusts, growth slows down and company margins and profits come under pressure. That could be bad for Chinese equities.
Emerging markets are too risky without putting all your bets on one card. I’d rather go general through a broadly invested emerging markets trust or a narrower South East Asia fund and then gratefully take any gains if the China slice of my fund comes up trumps.
Jeff Prestridge is personal finance editor of the Mail on Sunday