"Investors have clearly been spooked by the recent correction in the markets, but I think this is overdone and is creating good buying opportunities. The fundamental case for China and the investment trust remains intact: growth remains strong in a global context, especially in the area of consumption, which is supported by long-term trends such as urbanisation. The path for reform is set and this will continue to create opportunities, especially for innovative private companies. Stock picking will be key.
Recent events have shown that the rapid growth in margin-led investing clearly got ahead of itself in the sharp market run and we are now feeling the effects as it is unwound. This will likely take some time and markets will remain volatile. Policy response on the whole has been disappointing and in many ways runs contrary to the spirit of broader reforms and general market liberalisation. Also, that such a large portion of the market can be suspended from trading creates more market disruption and forces investors to question the efficiency of those markets.
There remains an abundance of prospective investment opportunities. With the run up in the market I significantly reduced net exposure in the trust. This has started to increase again. China is an immature market and there are many issues that need to be addressed, but it also offers great opportunities for stock pickers given the strong structural growth opportunities and valuation anomalies in the market.
Dale Nicholls, Manager of Fidelity China Special Situations PLC
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