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Jul 27, 2010

Lack of research on Chinese firms creates opportunities

Underdeveloped market a haven for mis-valued stocks, says fund manager

Anthony Bolton has said he is finding good investment opportunities in China provided by a lack of research coverage.

The legendary Fidelity fund manager is currently in Hong Kong running Fidelty’s new China Special Situations fund. Speaking on a webcast from China, Bolton noted that, as he had expected, the markets are less well researched there and this is something that drew him to investing in the country. 

‘It has been very much the case – especially in the medium and smaller-sized stocks – where I can find companies that have no broker research, or out-of-date research, or minimum broker research,’ he explained. ‘For someone like me, who has always sought out overlooked and mis-valued stocks, that throws up real opportunities.

‘You can find these companies with no research on them. My experience in the UK is, even when you get into small companies, it’s very unusual to find a stock that doesn’t have some analysis or research on it. But with some of these China shares, you can.’

During the webcast, the fund manager revealed he had seen about 160 companies since arriving in China, both in Hong Kong and on the mainland. He said language had not been as much of a problem as he thought it would, as 60 percent of the meetings he has taken part in were conducted in English.

Aside from meeting management, Bolton said much of the work he has done so far has been in building up a network of brokers with which he can cross-reference the information he gets from companies. ‘I’ve set up about 20 relationships,’ he said. ‘I’ve always liked to have a wide range of broker input in addition to our in-house input.’ 

Bolton admitted there were some drawbacks to working in China. For example, he said he couldn’t be sure whether other investors were getting better information than him, but added that this is a problem throughout the Asia region. He also explained that sometimes the authorities can pull a good management team out of a business at short notice and place it somewhere else. 

But nothing he had seen had changed his overall view about whether or not to invest in China. ‘[My thesis] is around the growth rate in China compared with the growth rate in the western world and, although everything is slowing – including China – I still think the relative growth is going to be very high here,’ he concluded.