China: “It’s a bit like looking for gold in a minefield”, Anthony Bolton

15th July 2011

The Fidelity fund star who last year launched a China Special Situations Investment Trust, has seen losses on two stocks as reported here on the Independent.   

As the Independent reports: "The China Integrated Energy lost 90 per cent of its market value this year after being accused of fraud by short-sellers. Its auditor KPMG resigned but the Nasdaq-listed company has denied the allegations." Fidelity has not named the other firm.

Bolton is not the only one however. US hedge fund manager John Paulson has also taken losses in similar circumstances over a Chinese firm Sino Forest, in which it was the biggest shareholder.

But Bolton remains bullish on the market and publicly at least seems to be taking the risks in his stride.

As the Financial Times reports here.

"Hundreds of Chinese companies have joined North American bourses in recent years by acquiring shell companies that were already listed, allowing them to bypass the scrutiny of an initial public offering."

It quotes Bolton as saying – "They're not all frauds. I think this will turn out in hindsight to be a fantastic opportunity for buying some of the other [reverse merger] companies which are the real ones."

"The fact that it is a controversial area is an attraction. It's a bit like looking for gold in a minefield."

Bolton is renowned as a contrarian investor, taking advantage of trends that others fail to recognise and this is something that stood him in great stead when he ran the UK centric Fidelity special situations fund for decades.

On Citywire, the comment boards are not impressed though.

Mark Cooper says: "Anthony Bolton's comeback reminds me more and more of Michael Schumacher's, being an equally sad spectacle."

Then again Bolton has proved people wrong in the past on several occasions but is China too much of a stretch for his expertise.

More Information here on Forbes Shaun Rein discusses the risks of China investment. This is from last year but many of the lessons clearly still apply.

And this post from commenter Dean Ruan is pretty useful too.

"Shaun, you're very right on Chinese companies' transparency issue. I'm a business consultant based in China and have been engaging in many projects severing Chinese companies listed in the United States. I've seen so many clients that significantly misrepresent their financial info. Some of the clients, despite listed in NYSE/NASDAQ, don't even sign labor contract with their employees! I was really surprised at that time, wondering how the hell the external auditors could issue an unqualified report – yes, the external auditors including the big 4 can be paid to remove any issues detected!"

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