Kingel
23 Jun 2015
China investors draw breath Chinese investors are drawing breath after the country's stock market finally found itself in positive territory following its worst week since the depths of the financial crisis.The country's main Shanghai Composite index ended Tuesday 2.2% higher, but only after plummeting to new lows, having fallen as much as 4.7% in the morning's trading.It was the first day the market had opened this week following Monday's public holiday, and followed a week in which the Shanghai Composite plummeted 13.3%, its biggest fall since the financial crisis.That severe fall has hit shares in the two investment trusts focused on the country. Fidelity China Special Situations (FCSS + Add to favourites ) is down 7% since last Monday while shares in JPMorgan Chinese (JMC + Add to favourites ) have fallen 4.6%.FCSS manager Dale Nicholls has been positioning the trust a bit more defensively, but has insisted investor fears of a stock market bubble are exaggerated.China shares have been on an incredible run over the past year, and are up by around 150% over the last 12 months, driven largely by the country's domestic investors scrambling to take part in the gains.Clampdown on investor borrowingSome have even been borrowing money to buy stocks, thanks to 'margin lending' services from the country's stock brokers. However, Chinese regulators have been clamping down on this practice, and in January this year banned China's three biggest brokers from opening new margin trading accounts for three months.Earlier this month, the regulator announced further measures to curb borrowing, with plans to limit brokers to financing trades of no more than four times their net capital.This fresh clampdown is thought to have played a part in last week's sell-off, along with a spate of initial public offerings (IPOs) that drew money away from the main market.'Local investors had to sell existing shares to raise money for a large amount of new IPOs, which locked up billions of US dollars,' said Khiem Do, head of Asia multi-asset at Barings Asset Management. 'Secondly, there were warnings by the authorities over margin lending. Basically, the authorities want to see a steady bull market, not a runaway one.' The decision by global index provider MSCI to postpone the introduction of China 'A-shares' – those listed on the country's domestic market – into its World and Emerging Markets indices, also explains the slump, according to Thomas de Saint-Seine, fund manager at Swiss fund group RAM Active Investments. Inclusion in the indices could have led to around $20 billion being ploughed into the market.'It was probably just a pullback following the decision of MSCI not to include A-shares,' he said. 'Investors were speculating on that. The Chinese market is very flow driven, therefore the bursting could be violent'.'Extremely expensive' sharesDe Saint-Seine believes China's A-shares are 'extremely expensive and not fundamentally justified', a view echoed by Stewart Richardson, chief investment officer at investment group RMG Wealth.‘With the current price-to-earnings ratio (P/E) of the hottest sectors in the hundreds... we are confident in the assertion that the Chinese stock market is in a bubble,’ he said.‘We are passing through the delusional period right at the peak of the mania phase, and with Chinese stocks down by 13% this past week, we have moved into a period of denial – the refusal of local Chinese to believe that the market is in a bursting bubble.'But others argue that while some areas of the Chinese stock market have become far too expensive, value can be found in other sectors. David Raper, a manager at global fund group Comgest, said Chinese retail investor enthusiasm was behind the soaring price of tech companies, which are trading on a P/E of around 70 times. 'Ironically, for the inverse reason, the less loved names by the
II Editor
23 Jun 2015
NEW ARTICLE: Investors told to sell Woodford Patient Capital "Stifel Funds has launched its coverage of the new LSE:WPCT:Woodford Patient Capital Trust - with a resounding 'sell' recommendation.Investment company analysts Iain Scouller and Maarten Freeriks point out that shares in the £920 million trust are ..."[link]
Kingel
12 Jun 2015
Fidelity China reels in gearing Dale Nicholls, manager of Fidelity China Special Situations, puts the trust on a more defensive footing in response to the country’s stock market boom.Dale Nicholls, manager of the Fidelity China Special Situations (FCSS + ), has positioned the £963 million investment trust more defensively following the country’s stock market surge, but insists investor fears of a bubble are exaggerated.In the past two months the fund’s net asset value (NAV) has leaped 19%, leaving the portfolio up 30% so far this year, amid a share dealing frenzy by Chinese private investors following a loosening of restrictions on the country’s stock exchanges.This follows a year to the end of March – Nicholls’ first in charge since succeeding Anthony Bolton – in which the trust’s NAV soared 45.3%, smashing a 39.3% rally in the MSCI China index. This spectacular gain has earned Fidelity £4.7 million in performance fees, although this is less than the £6.4 million it reaped last year after the fee was cut.The impressive NAV performance has justified Nicholls’ decision to nearly double his holdings of Shanghai-listed A-shares to a quarter of the fund. These have done much better than their H-share counterparts in Hong Kong after the authorities made it easier for foreign investors to own them.Gearing reducedHowever, in a note of caution Nicholls says he has ‘reeled in' the trust's level of gearing – or borrowing – to 19% of net assets from nearly 26% at the end of March.Gearing is a key differentiator of investment trusts from other retail funds, which cannot borrow money to invest. investing borrowed money investment trusts can increase shareholder returns when markets are rising, although conversely, when markets fall, they can lose more money. Many managers use gearing tactically, raising it when markets are doing well and lowering it before a downturn.FCSS’ borrowing is mainly through bank loans topped up with contracts for difference, a form of financial derivative that allow investors to bet on markets and companies with small sums of money.reducing the gearing Nicholls (pictured) is taking his foot off the pedal slightly, although it must be said 19% is still a high level of borrowing: for example, the trust’s main rival, JPMorgan Chinese (JMC + ), is 13% geared, according to data from Numis Securities, while generalist global emerging market trusts have only 2% of borrowing on average.Nicholls has also increased the number of ‘short’ positions in which he bets a company’s share price will fall. Again, this will help the trust if the market corrects although he points out that the relatively high level of gearing reflects his overall confidence.‘The fact that the portfolio is leveraged in the mid to high teens reflects my long-term view and conviction in the company’s holdings,’ he writes in the annual report.Discount frustrationNicholls and the board express their frustration that the trust’s shares have lagged behind the NAV growth in the portfolio with a price rise of 39.9% in the 12 months to 31 March. While a good result, it is not much more than the index return and is much less than the 45% portfolio growth achieved by the manager.This reflects the fact that the share price has on average traded 12% below the trust’s underlying net asset value in the past year. Since the financial year end the board has bought back over 7 million shares in order to reduce unwanted stock and narrow the discount.However, the discount has widened slightly to 13.5%, as investors have worried about China’s stock market overheating and its debt-laden economy imploding.Reasons to be positiveNicholls admits some of the negativity towards China is justified but argues that should not blind investors to the huge opportunities in the country.While China is slowing, he says the sheer size of the economy ($10 trillion) means that the 7% growth expected this year represents $700 billion of wealth cr
San Jaime
09 Jun 2015
Re: NAV - breaks £2 - 18% discount ? Interestingly despite the Trust buying back over 2 Million of its own shares in the past 10 days or so, there has been no impact on the rather high share price discount to NAV.FCSS, today with a sp of 169p and a NAV of 201p - a difference = 32p, this makes the discount of over 18% by my calculations.As a comparison I just checked out the JMC (J P Morgan Chinese) discount and that too is running at a 17% discount (sp 203/NAV238).After a fantastic year here,a pause for thought - I guess the market is not showing much confidence in China in the future environment.After adding a few at 170p I am watching closely but now keeping my hands in my pocket despite the apparent attraction of a rather high discount which the Trust is using to put more shares in the Treasury.....
lars25
05 Jun 2015
Re: NAV - breaks £2 Agree they look good value. On my Investment Trust watchlist they stand out as the cheapest.Personally I wouldn't buy them without hedging the market risk with a simultaneous short on a China ETF. They have been one of the most aggressive Trusts in buying back shares and you'd expect the discount to narrow in again over time. I have a hedged position on.
San Jaime
04 Jun 2015
Re: NAV - breaks £2 NAV peaked and has now dropped off - but running at a 15% discount, which is out of the normal range.of 8 to 12% usually seen here.The Shanghai & Singapore markets have been quite volatile again recently but it was a good day yesterday so expect the NAV to stay over 200.From BBC Asia Pacific Markets Report :-----Mainland Chinese shares closed at a seven-year high on Thursday amid volatile trade which saw stocks plunge as much as 5% at one point.Reversing losses, the Shanghai Composite finished up 0.8% at 4,947.10, its highest level since January 2008.Shares were initially down after more brokerages clamped down on margin trading, where investors can borrow money to buy stocks.-----Topping up around 170 may be an opportunity here, but DYOR 'cos actually WTFDIK ?
dunekiller
02 Jun 2015
New islands in South China Sea Chinese have seen that the Russians have got away with expanding, now they want to try it and if you look at 200 mile territory they are knocking on the doors of a lot of Asian countries. Put a stop loss on this for a month or two.
San Jaime
01 Jun 2015
Re: Repurchase of own Shares dunekiller - a day or two late but noticed that Dale followed your advice : " the Company on 1 June 2015 bought into Treasury 250,000 of its own shares at a price of 172.2 pence per share".Seems that when the discount to NAV goes above the low teens then the Trust is currently buying back their own shares. This can only help the share price, so just added another 589 shares for a grand.......
tegami01
28 May 2015
Re: NAV 196 to 206 in 6 days .... It's because the Shanghai composite index dropped 6% overnight. I thought this would actually go lower today, but If the Chinese markets stabilise this is definitely a buy up to 170.
dunekiller
28 May 2015
Repurchase of own Shares In fact good day for them to buy more of their own shares and bolster the price, we have had a good run up to now lock in those profits
dunekiller
28 May 2015
Re: NAV 196 to 206 in 6 days .... I was ready to set a stop loss on this could then buy in when bottomed 1 or 2 days of drops before I buy more
San Jaime
28 May 2015
Re: NAV 196 to 206 in 6 days .... Don't understand the 4% drop this morning to 167p which is lower than the April buy-back price of 170p paid by Dale. ? With a discount to NAV of around 20% may be worth adding a few today.(current sp 167p vs, NAV 206p). Will wait to see today's NAV before going for a small Chinese take away........
sage in the hills
28 May 2015
NAV 196 to 206 in 6 days .... thats got to be worth something as an indicator,and the discount has increased significantly today !!!SAGE
NCMR
26 May 2015
NAV - breaks £2 A milestone!
Kingel
15 May 2015
Fidelity China soars on stock market boom Fidelity China Special Situations (FCSS ) is flying. Its shares are up 22.1% so far this year, making it one of the best performing investment trusts of 2015 so far.Its rise has been helped by the astonishing boom in China's stock market, which opened up to more foreign investment last year. Over the last 12 months the Shanghai Composite index is up 113.8%, and 35.4% this year alone. The A-shares listed on the index were largely available only to domestic investors before November.Fidelity China manager Dale Nicholls has been an enthusiastic buyer of A-shares. He has more than doubled the trust's holdings in these stocks, to 27%, since he took over as manager from Anthony Bolton over a year ago.‘We’ve also been pretty aggressive in applying for QFII [qualified foreign institutional investor] quota,’ said Nicholls, who managed the trust alongside Bolton for 10 months before assuming control.‘There can be large dispersions in valuations [between A-shares and Hong Kong-listed H-shares] and, while I typically focus on small and mid caps, where there’s traditionally less information and more mispricing, there’s more value among large caps in the A-share market,’ he said. Anything small and growing can trade at 40x [price earnings] multiples or higher, while anything big and boring tends to have a more attractive valuation, so that’s where we’ve been increasing holdings.’A-shares that have picked up of late include China Vanke (000002.SZ), the country’s largest residential property developer; Midea (000333.SZ), the second largest air conditioning manufacturer; Shanghai International Airport (600009.SS); and Kweichow Moutai (600519.SS), China’s leading spirits manufacturer.While the weight of money has flowed from south to north – from Hong Kong to Shanghai – new rules introduced in early April allowing greater access for mainland mutual funds to invest in Hong Kong has seen capital also flow in the opposite direction.Nicholls (pictured) expects the Shenzhen Stock Exchange to follow suit and open up to foreign investment in the next six to 12 months. That index is more focused on technology stocks, while the Shanghai Composite is dominated by retail companies. ‘The anomalies between markets are getting worked out,’ he said.Rebalancing actThe rise of the Chinese consumer is Nicholls’ largest theme, and one he sees most mileage in. ‘The story for China in the mid-term is really all about consumption, as part of the economic rebalancing that the government is trying to bring about away from an investment and export-led economy to a consumption-driven one,’ he said.In first-tier cities, the number of cars per 1,000 inhabitants is just over 100 compared with almost 800 in the US. The trust holds Shanghai Automotive Industry Corporation, a joint venture between General Motors (GM.N) and Volkswagen (VOWG.DE), and Brilliance (1114.F), which has a joint venture with BMW (BMWG.DE).Amid growing internet penetration – in some cities now higher than in the west – Nicholls has also continued Bolton’s bias towards technology stocks.Nicholls has been using profits from the trust's stake in Alibaba (BABA.K), which it held before the e-commerce website's record $25 billion (£16 billion) flotation last year, to invest in rival JD.com (JD.O).‘It’s very different [to Alibaba] in that it owns its own logistics and warehousing. There’s space for another big player in the market,’ he said.Fidelity China Special Situations is the largest single-country specialist investment trust, with around £1.3 billion in gross assets, and a market capitalisation of £942 million. Touching the fleshNicholls, who is Citywire AA-rated for his open-ended fund performance, has undertaken around 650 company management meetings in the past year, averaging two or three per day, which he conducts alongside a sector-specialist analyst. He has turned over around 50% of the 140-stock portfolio, which he argues is l
