Bolton warns Chinese growth will miss estimates this year

Fidelity’s Anthony Bolton has warned Chinese GDP growth will come in at around 7.5% this year, undershooting consensus forecasts for growth of between 8% and 8.5%.

Bolton, manager of the £558m Fidelity China Special Situations investment trust, warned emerging markets are not immune from headwinds facing Western economies.

As a result, he expects the authorities to put the brakes on growth, bringing in further tightening mechanisms this year which will lead to a reduction in GDP growth.

"China will continue tightening to slow down its economy as the policymakers know the country is not immune from the troubles which are facing developed economies," said Bolton.

"Therefore Chinese GDP growth will deliver between 7%-8% this year, so around 7.5%, which is below consensus forecasts above 8%," he said.

The most recent data from the region show a slowdown is taking place, with China's economy growing at 8.9% in Q4 last year, the slowest pace in more than two years.

However Bolton, whose trust underperformed its benchmark in the last quarter, is sticking to his expectation decoupling will take place in the emerging markets.

"I still firmly believe more than ever about emerging markets decoupling away from the West, and growth will still come in well ahead of developed economies, which face a number of years of below-par growth."

The manager forecast Chinese inflation will be around the 3% mark this year, higher than consensus forecasts of 2%, adding inflation is no longer a headwind for the economy.

"Inflation has peaked and is no longer a headwind for China," he said. "Instead I think the biggest challenge the country faces over the next five years is when the country starts to deregulate, which will result in the government losing an element of control in the economy."

Bolton's trust lagged its benchmark in the final quarter of 2011, according to the most recent update.

The statement revealed the trust's NAV rose 3.49% in period, below the return of 8.36% for MSCI China.

The trust has underperformed the benchmark on and off since launch, with Bolton's call to underweight oil companies and take out put options on Korea all negatively impacting returns.

It has also previously traded at a discount, prompting the board of the trust to buy back its own shares more than once. Investment trust analysts JPM Cazenove and Oriel both urged clients to sell the portfolio last year.

However, the buybacks and an improvement in returns - albeit behind the benchmark - have pushed the trust onto a premium to NAV of 1%, with shares trading at 86.7p (according to Winterflood).