September, 2023
ENN Energy faced a sell-off after it reported lacklustre earnings and weaker than expected growth guidance in its recently released results. The market seems to have priced in all the negatives. However, we think the management has given a rather conservative FY24 guidance while the recent massive stock plunge is overdone. Now with its valuation at the bottom, we believe this presents attractive risk reward, offering good upside potential. Elsewhere, the position in aircraft leaser BOC Aviation fell as investors priced in the impact of a prolonged interest rate hiking cycle on the company’s profitability in the near term, which put the cost of funding pressure on the company. Nonetheless, with its best-in-class management and large exposure to high growth markets in Asia vs peers, we believe the company is set to benefit from an increase in lease rates, driven by a cyclical recovery and market share gains. Chinese automobile dealers China Yongda Auto Services and Zhongsheng Group slid amid intensifying price wars and rising competition among EV makers in China. This led to some profit taking in the stocks. Demand for EVs is seeing strong upside potential amid an array of supportive measures by Chinese policymakers to support sales, including an extended purchase tax break and the roll-out of high-quality charging infrastructure. We retain conviction in China Yongda as it has a robust balance sheet with solid cash flow and as its management is willing to return capital to investors. In the consumption space, an underweight stance in PDD Holdings weighed on returns. The company advanced after its reported quarterly revenue and earnings exceeded market expectations. Positions in Brilliance China Automotive and Focus Media Information Technology supported performance as they fared well in light of improving fundamentals. Investor enthusiasm towards Brilliance China was buoyed by news flow around its board’s decision to distribute a special dividend earlier in the quarter, which was well received by investors. Meanwhile, Focus Media Information Technology delivered robust results for the first half of 2023. Its management issued a promising outlook for 2023 and 2024, underpinned by a robust order book, effective cost controls and high margins. Holdings in China Hongqiao and China Oilfield Services also advanced. Investors remain optimistic about China Hongqiao’s near-to-long-term prospects as renewables and the penetration of EVs gains importance in terms of driving aluminium demand. China Oilfield Services gained as its shares tracked oil prices higher.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/FundFactSheet_fidelity-china-fund_Quarterly_Net_Sep23.pdfJune, 2023
BOC Aviation gained following recent upbeat management guidance on the demand outlook for aircraft leasing. The company has a long runway for growth, with solid leasing demand for aircraft against relatively tight supply, net lease yield recovery and an expansion in new growth opportunities. The increasingly lower financing rate received by BOC Aviation versus its closest peers implies that the company is likely to gain market share via potential industry consolidation among top tier lessors. Sinotruck Hong Kong advanced on expectations of solid demand growth in the HDT industry. The company is expected to benefit from potential re-opening recovery, which is likely to have a positive impact on HDT sales in the near term. Also adding value were our positions in PetroChina and China Petroleum and Chemical Corporation. Despite crude oil price decreased during the period, PetroChina managed to maintain stable gas margin, attributing in part to China domestic gas price reform, while China Petroleum and Chemical Corporation remains defensive with stronger than expected refining oil business recovery.
China Yongda and Zhongsheng Group slid due to weakening auto demand and intensifying price wars from EV sales in China. Nevertheless, we retain conviction in China Yongda, as it has a robust balance sheet with solid cash flow and as management is willing to return capital to investors. Moreover, its current valuation offers a high margin of safety. In addition, the growth of used car sales should offset some of the margin pressure on new cars. For Zhongsheng, margins for new cars appear to have bottomed out, while aftersales services remain intact and offer a solid cornerstone for profits.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/FundFactSheet_fidelity-china-fund_Quarterly_Net_Jun23.pdfMarch, 2023
The Fund delivered 9.6% net of fees, while the index returned 6.0%. Robust stock selection in the Chinese consumption and information technology sectors enhanced gains. An overweight stance in energy also added value. Conversely, an underweight allocation to selected names in communication services weighed on returns. Within internet sector, an underweight stance in online services platform Meituan and e-commerce company JD.com added relative value. In addition to geopolitical turmoil, investors remained concerned over intensifying competition and potential margin pressure in the Chinese ecommerce space, which led to a selling spree during the quarter. Elsewhere in energy, shares of PetroChina and China Petroleum and Chemical Corporation took gains amid recent OPEC oil production cut and an uptick in demand due to recovery in China. Holdings in internet search engine related companies Baidu and Zhejiang Dahua Tech gained on news flows that they have set up a development team to work on a ChatGPT-like chatbot. The subsequent supportive statements from China’s Ministry of Science and Technology, which expressed its desire to push for the integration of artificial intelligence into Chinese society and economy, buoyed sentiment towards these stocks. On contrary, an underweight stance in Tencent and NetEase weighed on relative returns. Their share price was further boosted as the technology giant received new game licenses from the Chinese regulators earlier in the year. This strengthens the view that the official rhetoric turned notably more positive, suggesting that regulatory pressure on the gaming sector has somewhat eased, and the industry will therefore experience a cyclical uptrend going forward. Chinese automobile dealers China Yongda and Zhongsheng Group declined following weaker overall automobile demand in China, rising production costs, fading automobile subsidies and intensifying price wars.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/FundFactSheet_fidelity-china-fund_Quarterly_Net_Mar23.pdfJanuary, 2023
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/FundFactSheet_fidelity-china-fund_Monthly_Net_Jan23.pdfDecember, 2022
The Fund delivered 8.2%, while the index returned 7.6%. Robust stock selection in industrials and materials enhanced gains. An overweight stance in consumer staples also added value. Conversely, selected names in communication services weighed on returns.
Conviction holdings added value
Conviction positions in China and Hong Kong, including Focus Media Information Tech and Sinotruk Hong Kong, saw a trend reversal of sorts amid hopes of an economic re-opening. Furthermore, Focus Media announced a special dividend, highlighting its management’s commitment towards its shareholders. Zhaojin Mining added value after it announced that mining company Zijin Mining has initiated a partnership in its offshore project. Furthermore, an improving outlook for gold prices over the quarter and a slowing rate of interest rate increases as indicated by the US Federal Reserve boded well for the stock.
Underweight in Chinese consumption names contributed
The internet sector suffered heavy losses amid regulatory concerns following the announcement of China’s new leadership team earlier in the quarter, as investors remained cautious over the country’s common prosperity goals. Against this backdrop, the underweight stance in online services platform Meituan and China’s second largest ecommerce platform JD.com added relative value. Meituan also faced selling pressure after its key stakeholder Tencent Holdings announced that it would divest its stake in the food delivery major. Likewise, not holding electric vehicles (EV) manufacturer NIO enhanced relative gains, following ongoing concerns over demand momentum for EVs in China, which is the world’s largest EV manufacturer.
September, 2022
Preferred holdings in real estate and health care added value The position in medical consumables supplier Shandong Weigao advanced after it reported robust revenues for the quarter and improved efficiency in its cost management. The company has diverse business lines, making it resilient against various policy changes and risks. Shares in housing transactions company KE Holdings supported performance as it reported healthy results. A positive outlook for company-operated Beike, a platform for housing transactions and services, further buoyed investor sentiment.
Overweight allocation to energy sector proved rewarding The position in energy enterprise China Shenhua Energy added relative value. The firm offers a desirable investment target due to the sector’s modest valuation, relatively high dividend ratio and increasing coal prices. The stock generates robust free cash flow yields and has a significant cash balance, which it uses to pay attractive dividend yields.
Selected positions and underweight stance in growth names held back gains An underweight allocation to consumer discretionary company Meituan detracted from performance. Investor confidence strengthened as it delivered better-than-expected quarterly results. It also reported resilient delivery service and narrowed new initiative losses. In addition, the position in China Merchants Bank fell as the sector suffers from weak loan demand from its corporate and retail client base given the slowdown in the economy.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/FundFactSheet_fidelity-china-fund_Quarterly_Net_Sep22.pdfJune, 2022
The position in housing transactions and services platform KE Holdings gained on better than expected results in the first quarter. It reported profits, beating consensus expectations of a deep loss. Shares in China Life Insurance rose as its valuations turned attractive. The position in Zhuzhou CRRC Times Electric benefited from supportive policies for new energy vehicles, as it is a major supplier in the electric vehicle (EV) supply chain. Shares in Hansoh Pharmaceutical advanced as investors looked for defensive businesses with strong balance sheets in the current volatile environment.
The underweight allocation to Meituan and not holding JD.Com detracted from performance as their shares advanced on expectations of a recovery in consumption following the re-opening of major cities and reduced mobility restrictions. Not holding automobile manufacturers BYD and Li Auto proved unfavourable as their shares rallied following indication that China would extend purchase tax exemptions for new energy vehicles.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/FundFactSheet_fidelity-china-fund_Quarterly_Net_Jun22.pdfMarch, 2021
The Fund’s outperformance was driven by the sector rotation into selected value-oriented high-quality stocks in which the fund holds an overweight position. Preferred holdings outperformed The position in Lenovo gained on the back of improving fundamentals, which drove strong share price performance. In addition to sustained high demand for personal computers, its service business is gaining traction, which bodes well for higher margins and better earnings visibility than pure hardware sales. The server business is bottoming out and Lenovo is well positioned to capture the uptrend with its best in class product and software suite. Preferred holdings in China Mobile and CNOOC, which were negatively impacted by geo-political tensions and lagged the growth rally in 2020, rose over the quarter as investors favoured their strong fundamentals and attractive valuations
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/FundFactSheet_fidelity-china-fund_Quarterly_Net_Mar21.pdfFebruary, 2021
Invests in 70 to 80 Chinese companies and draws on the research capabilities of Fidelity’s analysts based on the ground in China and Hong Kong. The Portfolio Manager is aware of the macro environment and policy changes, but believes bottom-up company specific research adds the most value when investing in China
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/FundFactSheet_fidelity-china-fund_Monthly_Net_Feb21.pdfDecember, 2020
The Fund returned 2.3% over the quarter, while the index returned 3.3%. Favourable news flow around the successful roll-out of COVID 19 vaccines led to a value rotation in November. However, it proved to be short lived, as growth-oriented stocks rebounded sharply in December, in line with their US counterparts after the US approved a fresh fiscal stimulus package. Geopolitical tensions also weighed on the performance of selected holdings.
Preferred holdings came under pressure Shares in state-owned telecommunications operator China Mobile declined following weak sentiment towards the wider telecommunications sector. Energy company CNOOC also declined. Both these stocks were negatively impacted by concerns that their shares will be delisted from the US stock exchange as a result of an executive order passed by the Donald Trump administration barring US investors from purchasing shares in companies that have alleged links with the Chinese military. China Life Insurance also fell out of favour amid a rotation back to growth stocks. Shares in China Overseas Land were caught in weak sentiment towards the wider real estate sector on concern over tightening regulations on top property developers.
Earnings recovery supported selected positions
The position in Lenovo gained after it reported encouraging earnings, driven by strong volume growth in personal computers (PC) on increased work-from-home demand. Shares in search engine leader Baidu rose on expectations of a rebound in its technology business, as well as in its advertising revenue as the economy is expected to gain strongly in 2021. Sentiment was further boosted on reports that Baidu, which also develops autonomous driving technology, is considering developing smart cars. Dongfeng Motor gained as it raised its dividend pay-out ratio and on improving earnings outlook from its joint ventures with Nissan and Honda.
ticker: FID0011AU
commentary_block: Array
factsheet_url:
https://www.fidelity.com.au/funds/fidelity-china-fund/related-documents/fund-fact-sheet/
Fund factsheet -> “Fund Performance”
https://www.fidelity.com.au/funds/fidelity-china-fund/related-documents/fund-fact-sheet/
release_schedule: Quarterly
fund_features:
Fidelity China Fund seeks to achieve returns in excess of the MSCI China Index over the suggested minimum investment time period of five to seven years.
- The Fund generally invests in a diversified selection of Chinese Securities.
- Invests into typically between 70 to 80 Chinese companies.
- Uses a bottom-up stock selection process that focuses on quality business models and management teams out of favour due to short-term macro reasons.
- In-house, bottom-up company research.
- Seeks out stocks that it believes are undervalued and likely to generate growth.
manager_contact_details: Array
asset_class: Foreign Equity
asset_category: Asia Pacific w/o Japan
peer_benchmark: Foreign Equity - Asia ex Jap Index
broad_market_index: World Emerging Markets Index
structure: Managed Fund