Bolton: My expectations for the coming year in China

Fidelity’s Anthony Bolton is expecting a slowdown in inflation to boost equity markets in China next year, following a sell-off which has hurt performance in 2011.

The latest figures from the Chinese authorities showed inflation had fallen to 4.2% in November compared with the same month last year.

It was the lowest inflation reading since September 2010 and a sharp fall in October when inflation was at 5.5%, having hit a three-year high in July of 6.5%.
The manager of Fidelity’s China Special Situations fund said falling inflation should allow the authorities to ease monetary policy.

“Inflation has been a key issue in 2011 but it has already started to come down,” Bolton said. “A slowdown in inflation has allowed the Chinese authorities to stop tightening monetary policy. This should be positive for the markets.”
Bolton said the next 12 months will be a “defining moment” for Chinese investment.

“We have been through an extraordinarily volatile year but I believe when the dust settles and things calm down, investors will focus on relative growth rates they can get in different parts of the world,” he said.

“I feel very strongly this will result in money flowing out of developed markets that have sovereign debt problems and very mediocre prospects over the next few years, and into the faster growing emerging markets like China.”

Chinese shares have suffered this year, with the Hong Kong Hang Seng index down 14% year to date, underperforming developed markets including the UK.

Bolton’s trust has also tumbled, seeing a share price loss of 36.4% in the last year, according to FE. The trust’s NAV is down 28.5%, compared to the MSCI China index fall of 15.9%.

However, Bolton is sticking with his investment strategy in China, backing consumer stocks into 2012.

“I continue to be positive on the consumption and services sectors and remain underweight exporters, commodities, infrastructure companies, banks and property companies,” Bolton said.

“Consumption and services are not immune to any slowdown in China but these are the areas with the best longer-term outlook where structural trends favour them. Even with a slowdown in GDP growth, I expect these areas to outperform the general economy.”