Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest.

It has been announced that Abrdn China will merge with its largest rival Fidelity China Special Situations in a deal that would create a trust with total assets of around £1.6bn. The proposals are subject to approval by both sets of shareholders and are expected to be effective by the end of March.

Helen Green, chair of Abrdn China, says that the company had failed to attract new investors with 70% of its shares held by three organisations and its stock had continued to trade at a wide discount to its net asset value (NAV).

“After a very thorough review process, including consultation with the company’s major shareholders, the board has concluded that the best practicable option to address the company’s over-concentrated register and to provide significantly improved liquidity to our shareholders is to merge with Fidelity China Special Situations, which is both sizeable and the clear leader in the China investment company sector.”1

There has been growing shareholder pressure across the investment trust sector to address the wide discounts, which has led to a surge in corporate actions. If the deal is approved, it would be the first example of Fidelity using mergers and acquisitions (M&A) to grow its business in this area.

The board of Fidelity China Special Situations says that the merger will provide increased scale and the expectation of improved liquidity. It would also allow a number of shareholders to consolidate their holdings across the two companies and diversify the share register.

Investors in Abrdn China will be able to rollover into Fidelity China Special Situations, although there will be the option for a cash exit of up to a third of the shares at a two percent discount to net asset value. Despite a sharp jump in the share price when the news was announced, the former is still trading about nine percent below its NAV.

Fidelity China Special Situations has just released its interim results in what was a challenging period for domestic equities. Over the six months to the end of September the trust delivered an NAV total return of -10.9%, which was marginally behind the 10.3% fall in its MSCI China benchmark.

Manager Dale Nicholls says that China’s post Covid reopening was impacted by subdued macro-economic data, while geopolitical tensions and problems in the property sector persisted. Sentiment does seem to have improved however, mainly due to reduced regulatory concerns and a greater emphasis on growth.

Nicholls believes that the consumer headwinds are behind us and that low inflation should be supportive for growth. He thinks that a lot of negativity is priced into Chinese equities and highlights the compelling valuations, in both historic and absolute terms, that are on offer.

Fidelity China Special Situations is currently trading at a 10% discount to its NAV.

More on Fidelity China Special Situations

Source:

Citywire, 28 November 2023

Five-year performance table

(%) As at 4 Dec 2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Fidelity China Special Situations 3.5 84.9 -16.1 -27.6 -4.0

Past performance is not a reliable indicator of future returns

Source: FE, as at 4.12.23 Basis: Total returns in GBP. Excludes initial charge.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. The shares in Fidelity China Special Situations PLC and abrdn China are listed on the London Stock Exchange and their price is affected by supply and demand. Investment trusts can gain additional exposure to the market, known as gearing, potentially increasing volatility. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice. 

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