The raft of stimulus measures launched by Beijing in September dramatically lifted Fidelity China Special Situations (FCSS ) into the black, according to half-year results, though the £1.1bn single country fund still ended up trailing its benchmark.

Figures from broker Deutsche Numis show that heading into the last week of September, Fidelity China had suffered a 13.8% fall in the value of its investments since 31 March, compared to a 2.9% rise in the MSCI China index.

That changed abruptly as the stock market surged in response to China’s policymakers making a serious effort to revive consumer confidence following a property slump. The trust rebounded with net asset value (NAV) notching a 16.1% gain for the six months to 30 September. The benchmark did better, however, rocketing 24.5%.

Shareholders received a total return of 13.3% as the shares widened their gap to NAV from 10.2% to 12.4%. The discount has since narrowed to 9.6%, leaving shareholders with a 10-year advance of 90.4% that is well ahead of the 56.5% index return.

That reflects increased buybacks by the board, which spent £18.4m repurchasing 9.3m shares, or 1.8% of capital, in the half year. Since September, a further £20.3m has gone on buying 9.4m shares, which will have further boosted NAV.

All-change

Fund manager Dale Nicholls said the rally masked the broader picture as the best performance had until that point come from traditionally defensive sectors such as energy, utilities, telecoms, and state-owned banks, with the overall market broadly flat.

‘Following the announcement of the stimulus measures, money flowed into sectors that were seen as the direct beneficiaries or had been sold off the most, leading to a strong rally in real estate, consumer stocks, and healthcare in later September and early October,’ Nicholls (below) said.

An overweight in financials contributed positively to the trust’s performance, with insurers Ping An and China Life doing particularly well.

Nicholls increased his ‘high-conviction position’ in Ping An. After a few tough years, the life insurance sector ‘remains at much lower levels of penetration than in the West and offers significant scope to grow,’ which he said was not reflected in the undervalued share price.

Data centre provider VNET Group benefited from ‘significant demand growth from increasing adoption of digitalisation and artificial intelligence (AI)’, Nicholls said.

Despite the late rally, consumer stocks weighed, although the manager said he remained excited by prospects at Alibaba, Meituan, and JD.com, and is adding to an already overweight position in consumer staples and discretionary spending stocks.

Although staples is typically thought of as a defensive area, it was not immune from the poor market sentiment earlier in the year, posting the second worst performance of the benchmark index from January to end of August, before rallying on stimulus measures.

‘As is often the case with broad-based corrections, this created opportunities in some very strong franchises, spanning areas such as beer, condiments, and dairy products, where we saw depressed valuations making these some of the cheapest companies globally in their respective sectors,’ said Nicholls.

He added PDD, an online retailer with a focus on the traditional agriculture industry, due to its ‘superior returns’. Mattress maker and retailer Man Wah was also added on the back of a depressed valuation, surrounding concerns over its property-related exposure, which Nicholls said was ‘priced in’.

The biggest purchase in the period was Tuhu Car, which was previously an unlisted holding before going public in September 2023. Its stock price fell following its listing, which allowed Nicholls to pick up a bigger stake.

He said the auto-maintenance service franchise is benefiting from the rising number of cars in China, where maintenance is a growing market given an ageing car fleet.

‘We see great potential for Tuhu Car to gain further market share through industry consolidation,’ said Nicholls.

After a government announcement on 8 November fell short of market expectations, Nicholls anticipated more ‘concrete’ actions from Beijing to boost the economy. While exporters had taken precautionary steps in response to the threat of increased tariffs by Donald Trump, moving more production to the US, the fund manager said he was focused on domestic businesses that would be less affected.