LONDON (Alliance News) - Rallying Chinese stocks have prompted the portfolio manager of Fidelity China Special Situations PLC to reduce the trust's borrowing and add to his short positions.
Portfolio manager Dale Nicholls said he cut the trust's gearing, a measure of borrowing defined as gross asset exposure in excess of net assets, to about 19% and added to his short positions after the trust's net asset value increased by nearly 19% in April and May.
Gearing increased to 25.9% from 22.9% in the year ended March 31, during which the trust outperformed its benchmark index as its net asset value increased by 45.3% and its share price by 39.9%. The MSCI China Index in sterling terms increased by 6.0%.
In Nicholls' mind, the stock market rally in China has been driven by better liquidity and improved sentiment following efforts by authorities to make it easier for mainland investors to buy stocks listed in Hong Kong.
"I still believe that China offers some of the most attractive long-term structural growth opportunities in the Asia region, but I can foresee some consolidation and continued volatility given the speed and size of this rally. The fact that the portfolio is leveraged in the mid to high teens reflects my long-term view and conviction in the company's holdings," Nicholls said in a note of caution within his review of the trust's last financial year.
Nicholls, who succeeded Anthony Bolton as portfolio manager in April 2014, said the biggest driver to the trust's performance in its recently completed financial year was its holding in Alibaba, which was bought as an unlisted holding in 2012, when the e-commerce giant was valued at just USD48 billion.
Alibaba listed in New York in September 2014, the largest IPO of all time, when it was valued at about USD290 billion.
One result of this IPO is that there are no longer any unlisted holdings by the company. "I continue to search for new unlisted ideas and am working to uncover the Alibabas of tomorrow," Nicholls said.
Shares in the trust were up 0.8% at 172.14 pence on Friday.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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Fidelity China Special Situations PLC (FCSS)