Anthony Bolton - 2011 China Fund Outlook

Investors are right to be concerned about China’s medium-term future, according to Anthony Bolton, the manager of the Fidelity China Special Situations trust.

Bolton says he does not want to belittle investors’ concerns about the country’s one-child policy and the low number of young people growing up to support the economy.

According to Bolton, the authorities will most likely have to offer the middle class greater freedom, not just greater wealth, which would require major political reform.

On the economy, he says he is concerned in the medium term about sharp rises in the real estate market in Hong Kong in particular, and about Hong Kong’s ultra-loose monetary policy, which is pegged to America’s.

He admits that if the country’s high inflation takes off more than he expects, it might pose political problems for the authorities.

However, in the short term Bolton says the authorities have the policy tools to manage the country’s economic pressures, including the monetary policy to balance inflation and growth.
“It’s unlikely the Chinese are going to do anything radical [with monetary policy]. It’s unlikely they’re going to stop the economy in a big way in a year where they will have policy changes,” he says. (article continues below)

He adds the economy still looks to be moving away from an excessive emphasis on exports and more towards domestic consumption.
“A lot of people worry about the demographics of China in the medium term, and I don’t want to belittle that, but the urbanisation process is more important to driving consumption,” he says.
However, Bolton observes investors need to remain agile in pursuing domestic consumption themes in China.

He has taken stakes in suppliers to domestic consumer companies, rather than the companies themselves, whose share prices look high in Bolton’s opinion.

Overall, Bolton says the problem is not so much with finding good company management in mainland China, as with finding stock prices which look attractive.

So far, he has focused primarily on Hong Kong and American-listed businesses, rather than Chinese mainland shares, which he says have typically been valued less attractively.

However, he says he will be looking more intensively at Chinese mainland A shares this year following falls last year.

Fidelity has also received an indication from the Chinese authorities that it may receive a permit to invest in mainland China.

On a company level, Bolton says he places shares into two broad buckets: businesses which are growing less strongly, but are relatively cheap, and firms which are growing more strongly, but have fuller valuations.

He says he would have been less willing to buy the latter type of company when he was investing in Europe, but that he has to make allowances for differences in the Chinese market.

Source: FundStrategy

Artemis Strategic Assets - William Littlewood Update

It was interesting to read that William Littlewood has recently reduced his gross long equity position from 86% to 84% whilst also increasing its short positions slightly.

I have a substantial amount of my ISA in this fund and it is one that I regard as a core holding due to the UCITS structure and Littlewood's multi asset approach. This is one of the funds that I therefore do not look to reduce my holding in during times when the markets look overbought.

With Longview Economics also pointing to a return of risk aversion as supporting the overbought indicators in the next month or two, there definitely appears more more potential risk and downside that upside potential.

Littlewood says if shares continue to rise from here, he will trim the fund's equity exposure further.

"Why?" says Littlewood. "Because, from such levels, and given the uncertainty of the situation with regards to sovereign debt, shares look vulnerable to a disappointment.

"Secondly, opportunities (and valuations) are of course relative. At the margin, if equities go on up we would simply see better opportunities elsewhere - for example, in bonds."
Littlewood has continued adding to the fund's large-cap holdings, mainly on the grounds of relative valuation.

"Stocks large enough to be in the FTSE 100 and their international equivalents now account for 73% of the equity long portfolio. We like, selectively, US large caps," he says.

The manager belives the European sovereign debt crisis remains the biggest threat to investors.
"Our view, long espoused here, is that this problem will be with us for years to come. Ireland was rescued with a €85bn package. This might keep that country going for a few more years.
"But given the huge levels of debt and the ever deteriorating demographic pressures, Europe will not be able to save itself. Next in line for a bailout will be Portugal, followed by Spain.
"If Ireland with a population of 4.5 million needed €85bn, what will Spain - with a population nine times larger - require?"

He adds: "A Spanish melt-down would dwarf the combined problems of Ireland and Greece. Even if the EU extends its bailout, the point is net income and gross habits are simply unsustainable. Will Spain swallow the necessary medicine? We will see."

Read more: http://www.investmentweek.co.uk/investment-week/news/1937566/littlewood-trims-exposure-vulnerable-equities#ixzz1BQdezbKG