Investing in China

I feel quite sad about the flack that Anthony Bolton is receiving as a result of his exit from the control of Fidelity China Special Situation Investment Trust. Certainly the fund has gone backwards from its launch, but then during this period so has every other Chinese fund – in the last few years this has been a failing sector. The Shanghai Stock Exchange Composite Index is currently back down at levels not seen since the financial crisis of 2008.

Surely this makes the case for being a Momentum Investor and only holding funds in the best performing sectors. Even the best of managers – and Anthony Bolton is one of the best – cannot make progress in a falling sector.

How long will China remain a difficult sector in which to make investment progress, and will it ever return to the heady days of pre 2008 when it was an investment gold mine? Perhaps China`s economy and stock markets will copy the example of Japan`s after the end of the Second World War. In this case there was enormous growth as money and technology were poured into the economy, but over the years this growth slowed down from the mid teens to a more manageable five or six per cent per year as the economy matured. It was only then that the Japanese stock market really took off and we saw the Nikkei reach the dizzy heights of thirty thousand plus. Of course, as we all are aware, things went wrong after that as property and technology bubbles formed and burst and this, combined with external manufacturing competition, took the Nikkei back down to below nine thousand.

The question is whether the Chinese economy has gone through a similar first stage of rapid growth and is now settling down to a more sustainable level of growth matching demand with home consumption and export sales? If this is true, will we also see a similar dramatic surge in the Chinese stock markets as occurred with the Nikkei?

Only time will tell if this becomes the case and Anthony Bolton will eventually be proved right.