The approach I take to managing the Fidelity China Special Situations trust is to focus on undervalued companies that have good long-term growth prospects and have been underestimated by the wider market. The Chinese market is the perfect hunting ground for such stocks. It is broad with the winners still growing rapidly, and there are plenty of hidden gems that fly under the radars of local and international analysts.
I hone in on opportunities in small and medium-sized companies, where lower levels of research by the market leads to greater potential for mispricing, but I also invest in large or mega-cap companies, including state-owned enterprises, where mispricing appears. China’s capital markets are increasingly dynamic, with new firms coming to market all the time. We are finding more opportunities to take positions in companies before they go public. In recent years the private markets have deepened; more companies are finding it possible to fulfil their capital needs with more rounds of capital raising before they float. The trust is free to invest up to 15% of the portfolio in unlisted companies.
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