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Fidelity China Special Situations announces its Annual Results

China Special Situations

China Special Situations - Investment Trust Range

  • The Board of Fidelity China Special Situations PLC (the “Company”) recommends a final dividend of 4.25 pence per share, an increase of 10.4% to the prior year. 
  • The Company recorded a net asset value (“NAV”) total return of -5.9% and share price total return of -6.5%. The discount to NAV moved over the period from 7.9% to 8.6%. 
  • April 2020 marked the Company’s 10th anniversary. Over the decade the NAV has increased by 160.8%, giving an annualised total return of 10.1%. The share price increased by 138.6%, giving an annual-ised return over the decade of 9.1%. 
  • The portfolio currently has six unlisted investments representing 6.0% of the Company’s Gross Assets, including Bytedance (TikTok), Didi (ride hailing), DJI (manufacturers of drones) and Pony.ai (driver-less vehicles). 
  • This year’s AGM will be largely virtual in nature, with an online presentation by the Chairman and Portfolio Manager which will be made available online at fidelity.co.uk/china.

Nicholas Bull, Chairman of Fidelity China Special Situations plc, comments:

Our year to 31 March 2020, the tenth year since the Company launched, can be seen in two parts: the first nine months to 31 December 2019 and then, as Coronavirus (“COVID-19”) hit in China, the quarter to 31 March 2020.

GDP growth in China for the year 2019 was a relatively robust 6.1%. However, in the New Year, as the virus struck, China entered the first of three phases: the stoppage of production and the restriction of movement. The second phase followed as the pandemic was brought under control and production resumed gradually. The effect of this was that growth in GDP in the quarter ended 31 March 2020 fell by 6.8%. The third phase followed at the beginning of our new financial year with the end of the Wuhan lockdown on 8 April 2020. By the end of April, economic activity had increased to the extent that growth of electricity consumption was back to the level of the same time in the previous year. 

At the time of writing, economists in China are forecasting a significant rebound in the economy, with some estimates of positive GDP growth for 2020 as a whole. Clearly it is too soon to tell. 

The stock market in China, which had risen 3.2% during the nine months to 31 December 2019, fell 4.2% in the first quarter of 2020 so that overall the MSCI China Index, against which we measure our performance, produced a total return of -1.0% during the year under review. Against that, the Company returned a NAV total return performance of -5.9%, which, as Dale Nicholls explains in greater detail in his report, was largely due to the underperformance of our smaller and mid cap companies in an environment where retail money followed the largest, best-known stocks in the index. 

In April, in the midst of the COVID-19 crisis, our Company reached its 10th anniversary. Looking back over that decade, a number of things are clear. First, for our shareholders, on a total return basis, the NAV has increased 160.8% and the share price 138.6%, significantly outperforming the Index which increased by 87.4%. Looked at in terms of investment return, a shareholder who invested in the IPO in 2010 and reinvested all dividends will have experienced a share price annualised return over the decade of 9.1%. The annualised total return in NAV in the ten years since our IPO in 2010 has been 10.1%. 

Second, in that decade, investors’ attitude to China has developed in a major way. When the Company launched, commentators asked: “Why invest in China?” Now they ask: “What is the best way to invest in China?” Our objective from the start has been to provide investors the opportunity to include in their portfolios a direct exposure to the growing Chinese economy. Consistently through those ten years we have focused on the growth within China and have followed the growth in the Chinese middle class (both in size and in prosperity) by investing in companies providing products and services which they consume. 

Third, the importance of China as an investment destination has been recognised by the increasing number of companies included in world stock market indices. 

The Board of the Company sets aside a day each year to consider its strategy and, as we enter our second decade, we still believe that the best way to participate in China’s growth is, first, through the medium of a closed ended vehicle – an investment trust; second, by utilising Fidelity’s extensive in-country presence to identify companies that will grow, many of which have not yet been fully recognised; third, by investing in companies whose business is within China rather than being export-based; fourth, in utilising a portion of the portfolio to invest in unlisted securities ahead of their potential IPO; and fifth, utilising an element of gearing to reflect our long-term confidence in our investment proposition.

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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. Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments are subject to currency fluctuations. Fidelity China Special Situations PLC can use financial derivative instruments for investment purposes, which may expose it to a higher degree of risk and can cause investments to experience larger than average price fluctuations. This trust invests more heavily than others in smaller companies, which can carry a higher risk because their share prices may be more volatile than those of larger companies and the securities are often less liquid. This Investment Trust invests in emerging markets which can be more volatile than other more developed markets. The shares in the investment trust are listed on the London Stock Exchange and their price is affected by supply and demand. The investment trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. 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 an authorised financial adviser.