The Coronavirus is likely to be less deadly than the Sars pandemic in 2002, meaning investor confidence should recover relatively quickly, the manager of Fidelity's China Special Situations trust has predicted.
Speaking yesterday (January 28), Dale Nicholls, portfolio manager of the £1.2bn trust, acknowledged the effect of the virus was “very hard to say” but said many factors were better than in the early 2000s.
He said: “There’s no question the response from the government has been faster. Data and transparency has been better.
“In terms of numbers, the initial sense around mortality means the numbers are better. There are better transportation markets, medicine has improved. These are all key factors which affect how the country reacts.”
Mr Nicholls was comparing the recent outbreak of the Coronavirus to Sars, which originated in China in 2002 and killed hundreds of people.
Asian and Chinese markets declined during the period in which the Sars virus spread, ultimately to 17 other countries, but bounced back once it had been contained.
Mr Nicholls said the effect could be less dramatic on this occasion.
He said: “Looking back at Sars, there was a greater amount of uncertainty. If we look back to this previous example, stocks will suffer in the short-term but long-term stories are still good.”
Hong Kong’s main index, the Hang Seng, is down 2.8 per cent this month as of today (January 29). But major indices such as the S&P 500 remain higher for the month despite slumping on Monday.
Mr Nicholls said that while travel and insurance companies would be affected in the short term, there were others that could see growing interest.
“About 25 per cent of consumption in China is now online so there’s clearly potential for even faster growth online if people are staying indoors more. Areas like online delivery and online education.”
On a longer-term view, the manager said the slowdown in the Chinese economy was happening “for all the right reasons”.
He said: “Consumption is now the biggest driver of growth, so the key is to bet on consumption, which is in line with the government’s goal in developing a middle class.
“People want appliances and cars. It’s aspirational spending. In general car sales are down, but the sales of Porsche and BMW vehicles are up.”
Mr Nicholls noted the trade war between the US and China had held markets back by affecting individual businesses, but added it was positive they had agreed on a 'phase one' deal.
On top of this, unrest in Hong Kong had impacted the Chinese economy, Mr Nicholls said.
The headwinds affecting China, of which Coronavirus is the latest, have affected Fidelity’s Chinese Special Situations trust and it is now trading at a discount of nearly 13 per cent.
To mitigate this the board has spent £4.2m buying back shares. This reduces the number of shares in existence and thus should boost the share price.
Mr Nicholls said this was likely to continue as the discount meant it “made sense” for the board to buy back at a discount.
imogen.tew@ft.com
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