Partner Insight: Uncovering China's innovative private companies

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Partner Insight: Uncovering China's innovative private companies

Dale Nicholls of Fidelity China Special Situations PLC tells why he is using the trust’s closed-ended structure to invest in China’s vibrant unlisted sector

China's diverse listed universe remains the primary vehicle for investors looking to access China's long-term growth story, but there is an increasingly significant opportunity set among its vibrant and diverse unlisted companies. With companies generally coming to market later, there's a huge amount of activity in the pre-initial public offering (IPO) stage in China.

The unlisted sector is less well-known, and therefore more mis-priced, offering greater potential upside for investments. Over the years, the unlisted space in China has deepened, and while still not as developed as in Western markets, it does offer plenty of interesting opportunities for the patient, long-term investor.

The trust has been investing in China's unlisted companies since it was launched in 2010 and has the ability to invest up to 10% in this space. For example, we were early investors in online e-commerce company Alibaba, which we had held as an unlisted holding for nearly three years before its record-breaking US$25 billion IPO in 2014.

When we analyse any company, we look at three main areas: its ability to generate consistent and high returns over time, the potential for future growth and the strength of its management team. To help us find the best ideas, we have research teams on the ground in Shanghai and Hong Kong. This extensive research capability helps us to identify ideas which haven't been discovered or are not so well understood by the market.

Important information

This information is for investment professionals only and should not be relied upon by private investors. The value of investments can go down as well as up and you may not get back the amount invested. Past performance is not a reliable indicator of future returns. Investors should note that the views expressed may no longer be current and may have already been acted upon. Changes in currency exchange rates may affect the value of an investment in overseas markets. Investments in emerging markets can be more volatile than other more developed markets. Fidelity China Special Situations PLC can use financial derivative instruments for investment purposes, which may expose it to a higher degree of risk and can cause investments to experience larger than average price fluctuations. Investments in small and emerging markets can be more volatile than other more developed markets. Changes in currency exchange rates may affect the value of investments in overseas markets. The shares in the investment trust are listed on the London Stock Exchange and their price is affected by supply and demand. The investment trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. Investments in smaller companies can carry a higher risk because their share prices may be more volatile than those of larger companies. Reference to specific securities should not be interpreted as a recommendation to buy or sell these securities, but is included for the purposes of illustration only. Issued by FIL Pensions Management, authorised and regulated by the Financial Conduct Authority and Financial Administration Services Limited, authorised and regulated by the Financial Conduct Authority. Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. UKM1020/32301/SSO/0320

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