Fidelity’s Nicholls: Don’t Ignore China’s State-run Stocks

Updated : Aug 29, 2019 in Articles

Fidelity’s Nicholls: Don’t Ignore China’s State-run Stocks


Hello, and welcome to the Morningstar series,
“Why Should I Invest With You?” I’m Emma Wall and I’m joined today by Dale Nichols, Manager
of the Fidelity China Special Situations Fund. Hello, Dale. Hi, Emma. So, your trust obviously is closed ended and
that’s what sets it apart from a lot of Chinese and Asian equity funds. How does that influence
your investment decisions, particularly within the special situations sector? Sure. Well, obviously, I don’t have to worry
about flows. So, from a liquidity perspective, I can go down the cap curve a little bit further.
But what’s special about this trust as well is obviously I can gear up and I can short
as well as invest in unlisted companies. So, it’s the overall flexibility of the trust
that I think is really interesting. And when you’re dealing in markets that are very volatile
like China, a lot of those tools really come into play. I mean, this must make it a little bit more
tricky as well, but when you put it off, those gains are much greater. I think so. Yeah, absolutely. You can really
capitalize on the opportunities that volatility brings about. And the trust has done very well over the
medium term, 5-Star status from Morningstar analysts. What do you think has driven that? I just think it really just comes down the
stock picking. It’s a market that’s very much driven by a lot of macro factors. But there
are a lot of companies that are interesting and it’s kind of an under-covered market relative
to some other markets. So, there’s just a lot of really good stock picking opportunities
and obviously, we’ve leveraged that ability to invest in unlisted companies as well which
has really driven performance as well. Looking then at those stocks, I mean, one
of the great sort of unknowns investing in this part of the world is the concept of a
state-owned enterprise. We don’t really have them so much anymore in the U.K., not since
the 80s. But a lot of people in the U.K. assume that they are not the place to be in China
because why would you want to be somewhere where the state can meddle. But actually,
you and your team have a slightly different view on that, don’t you? Well, I must say, the story in China really
is still about the private companies. They are the ones that will get a benefit from
so much of the reform in terms of the level playing field and sort of the opening up and
liberalization of the economy. So, I do think they are the most interesting area, but you
can’t ignore the state-owned companies because some of them have really great assets and
you’ve got to think about – if state-owned enterprise reform really does happen, there’s
good potential to actually improve the returns on those assets. So, I think about what are my larger holdings,
Shanghai Airport, and that’s a fantastic asset and it’s benefiting from domestic travel but
also the significant increase that we’re seeing in outbound travel. You got things like Shanghai
Disney Land which is opening up next year and again, it’s a great asset but you can
imagine pretty strong potential to improve the returns on those assets as well given
what I think is kind of an undermanaged retail and sort of food and beverage offering that
they currently have. So, if there is real reform, there is good potential to actually
improve the returns on those assets as well. Dale, thank you very much. This is Emma Wall for Morningstar. Thank you
for watching.

Leave a Reply

Your email address will not be published. Required fields are marked *