Anthony Bolton’s China Special Situations investment trust has suffered losses from companies hit by fraud allegations and has seen its share price fall in the first half of 2011.
In the trust's annual report for the year ending 31 March 2011, Bolton wrote: “The second half of the period and performance since the period end has been disappointing for investors and me personally.”
Emerging markets have fared less well during the first part of 2011, under pressure from investor concerns over inflation and other issues such as rapid credit growth.
In the annual report, Bolton said: “For the first part of 2011 investor flows have returned to developed markets and emerging market funds have seen redemptions. I believe this is a temporary pause and flows will return to emerging markets.”
The closed-ended investment fund, which is listed on the FTSE 250 Index, continues to focus on Chinese consumption and service sectors, which Bolton identifies as long-term growth stories.
“The portfolio remains very underweight in most exporters, and infrastructure and commodity names, including oil shares. This low oil exposure has hurt the fund this period but for the moment I am maintaining the position.”
Bolton believes commodities shares have high valuations, are over-owned and risky. “I do not think they reflect the slowing growth in China and low growth in the rest of the world,” he wrote in the report.
Allegations of fraud levelled at Chinese companies listed in Canada and the US has seen their share prices slide.
One high profile example is Sino Forest, a tree plantation owner operating in China but with a listing on the Toronto stock exchange. Allegations were made about the company’s corporate practices and reporting of its holdings. The company has denied the allegations and has set up an independent committee to investigate the issues raised.
In an interview with the Financial Times, published on 15 July 2011, Anthony Bolton said the China Special Situations fund had suffered losses from two small Chinese companies listed in the US.
Bolton named one of the companies as China Integrated Energy, but did not name the other. He told the paper that holdings in companies had been liquidated at a loss, saying that you learn from your mistakes and move on. He said he was now spending even more time looking into companies.
In the annual report, Bolton said he remained ‘convinced’ about the long-term case for investing in China.
“In the short term there are challenges as the Chinese authorities try to effect a soft landing for their economy, but I believe they will succeed,” he added.
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