What happens when a mild fund manager superhero takes on the rampaging, maniacal Chinese equity market monster? Look away, kids: Anthony Bolton never stood a chance. This week another holding in Fidelity’s £500m China Special Situations Fund was squashed. Ports Design plunged by one-third as it became embroiled in a corporate governance scandal. That follows a 54 per cent fall during the past year in another of Mr Bolton’s recent holdings – Gome, the Chinese electronics group.
Just bad luck? Ports Design was a Hang Seng constituent until it was suspended in March after delaying full-year results. When the numbers were published this week, Ports’ chief executive resigned after taking full responsibility for hefty loans to related parties, including himself. Gome’s troubles have not been helped by disputes between former management and its jailed founder.
There is some logic in Mr Bolton’s strategy of chasing value in under-researched Chinese consumer stocks. After all, the sector tends to have good top-line growth, strong net cash generation, and reasonable margins. These attributes have made the biggest consumer goods companies relatively expensive for investors. Hong Kong’s consumer index trades at a 50 per cent premium to the broader index. True, Ports Design was trading at half the multiple of larger and better-known rivals such as Metersbonwe. And Gome trades at a big discount to its more successful peer Suning. Perhaps they were cheap for a reason.