--- title: 'China is volatile, but the future for stock investors is bright' source: 'https://www.youtube.com/watch?v=RhESPnKSWGY' video_id: 'RhESPnKSWGY' date: 2026-09-16 duration_sec: 495 channel: 'interactive investor' --- # China is volatile, but the future for stock investors is bright > Source: [China is volatile, but the future for stock investors is bright](https://www.youtube.com/watch?v=RhESPnKSWGY) ## Summary In this insider interview, Dale Nichols, portfolio manager of the Fidelity China Special Situations Investment Trust, discusses the improving outlook for Chinese equities following the relaxation of zero-COVID policies. He highlights opportunities in consumer discretionary, industrials, and financials, and explains why valuations remain attractive despite recent volatility. ### Key Points - **Optimistic outlook for China** [00:30] — Nichols believes China will be one of the few large economies with accelerating growth and earnings upgrades this year, following the end of zero-COVID lockdowns. - **Portfolio changes: consumer discretionary** [01:26] — The trust increased exposure to consumer discretionary stocks, which were hit hardest by lockdowns, expecting a strong consumer recovery driven by pent-up demand and high household savings. - **Property sector bottoming** [02:35] — A bottom in the property sector is key for consumer confidence, as Chinese consumers have significant property exposure on their balance sheets. - **Financials as a laggard opportunity** [03:07] — Financials could benefit from increasing credit growth, improving credit quality, and regulatory clarity, making them an interesting area for potential fundamental improvement. - **Example stock: JNBY** [03:19] — JNBY (Just Naturally Be Yourself) is a high-end apparel company in the portfolio, competing with foreign brands, with a good growth track record and recovery prospects as people go outdoors more. - **Valuations still cheap** [04:19] — The trust's forward P/E is around 11-12 times, below the historical average of 15 times, and up from a bottom of 8-9 times, indicating room for multiple expansion. - **Regulatory unwinding in property** [05:14] — Tightening regulations in the property sector are being unwound, with potential for lower deposit rates and levels, improving prospects for the sector. - **Selectivity in property developers** [06:00] — Nichols favors state-owned developers over private ones, focusing on those with strong balance sheets. - **Volatility creates opportunities** [06:23] — China's market is headline-driven and volatile, but this volatility allows patient investors to buy quality companies at attractive prices, as the trust did during the downturn. - **Long-term view essential** [07:33] — Investors should adopt a long-term perspective, focusing on individual companies' earnings growth and value creation over time. ### Conclusion Dale Nichols presents a cautiously optimistic view on China, emphasizing attractive valuations, a consumer-led recovery, and opportunities created by market volatility, while advising a selective and long-term approach. ## Transcript Hello and welcome to our latest insider interview. Today in the studio I have with me Dale Nichols, who is the full manager of the Fidelity China Special Situations Investment Trust. Dale, thanks for coming in today. Thanks, Kyle. Great to be here. So, Dale, it's been a challenging couple of years to be investing in China. One of the main headwinds has been the zero COVID policy. Now that that's been relaxed, are potential brighter times ahead? I think absolutely. If you think about what's held the market back, I mean, there's a few things, obviously the regulatory storm that we've been through, what's going through in the property sector, but I'd say, you know, definitely the zero COVID policy, the lockdowns have been a real constraint on just economic growth in general and sort of, you know, the market as well, just that mindset around that as well. So clearly, you know, we've got through things pretty quickly and I think from here the outlook looks pretty bright. I think China will be one of the few large economies that actually has accelerating growth this year in terms of economic growth and likewise probably accelerating earnings growth as well and we're actually seeing earnings upgrades come through as well. So I think it's stacking up pretty well relative to a lot of other markets. Have you been making changes to the portfolio to take advantage of the lower valuations that are on offer, are there any sectors you've picked out that you've been increasing exposure to or any new companies? Yeah, absolutely. So through last year, as you know, we saw a significant sell-off, sort of record low valuation. So that threw up quite a few opportunities. And I think those sectors that were impacted by the lockdowns were clearly the ones that got very cheap. So in the consumption space, that was definitely an area of increase for me. So when I think about sort of the changes in the portfolio over the last 12 months, actually consumer discretionary is probably the biggest area of increase with the view that things had to open up You know I think things have probably opened up faster and earlier than we expected But I think the outlook for the consumer is clearly very strong It will be the main driver of growth this year. And I think the prospects are pretty good. You've seen a real massive increase in household savings through this period, through the COVID period. Obviously, people have been locked up for three years. So I think there's a lot of pent up demand that can be released. I think clearly you need to see some bottoming in the property sector. So I think the mindset around property, obviously, the consumer in China has pretty significant exposure on their balance sheets to property. So I think if we see things start to bottom in the property sector, I think from a consumer confidence point of view, I think the prospects are clearly strong in the whole consumption space. And then I think beyond that you can look to a sort of broader economic recovery, so the industrials and I think also particularly interesting would be the financials. If you think about basically the potential for increasing credit growth, improving credit quality, again more regulatory clarity in some sectors, I'd say that's an area that's been a laggard but I think the prospects in terms of fundamentals improving actually looks pretty good. Could you give us a couple of examples of consumer stocks that you own in the portfolio? I'm thinking of a company called JNBY, which stands for Just Naturally Be Yourself. It's an interesting name, but this is a company that does relatively high-end, kind of edgy apparel. So I guess in many ways competing with some of the foreign brands, but doing a good job at that. quite innovative company, a good track record of growing the business over time. So again, as things open up and people are heading outdoors more, I think there's good prospects for recovery there, and you paying quite a lot of multiple single earnings for a business that has a good track record of growing over time and should benefit from some recovery And how do the valuations of the companies that you own compare today to history for the trust Yeah, if you look at the sort of, over time, average valuations for the trust have probably been around 15 times forward earnings. And now we're probably in the sort of 11 to 12 times range for the trust. So kind of in line with the market overall. And that's recovering from the bottom of probably closer to 8 or 9. So obviously we've had a pretty nice bounce from the bottom as the sort of prospects have improved. But from a historical perspective, it's still reasonably cheap. So there's, I think, still pretty good prospects in terms of that multiple potential to expand. As you touched on earlier, one of the headwinds has been the regulatory changes to the technology sector. Right. And another area of concern is debt levels in the property market. Yes. What are your views on those two areas of concern? Yeah, I mean, it's been, as you say, a really tough period for the property sector. I think it's important to keep in mind that a lot of the correction is due to tightening regulatory policy. and now we're in the process where a lot of that tightening regulation is actually being unwound. So I think that continues. There's more potential for lower deposit rates, lower deposit levels on properties and that sort of thing. So I think the prospects for things improving are actually pretty good. But you're right. I mean, if you think about – I'm not so concerned about the individual consumer as we've talked about. The consumer balance sheet is actually in pretty good shape. cash levels have picked up but it's been a it's been a tough time for the developers particularly the private developers so I think it's important to be selective when you're looking at the market and really focus on you know the developers that have the strong balance sheets and I probably favor the state developers versus the private developers at this point in time I mentioned there been a tough short period If I took the time period from the 1st of February 2021 to the end of October 2022 the share price of the trust will be down 50%. Does that sort of drawdown show the risks of investing in China? You have to be honest, China's a volatile market. tends to be fairly driven by headlines. Whether it's about economic growth, whether it's about geopolitics, it tends to be in the headlines, and the market is volatile as a result, and sentiment can swing significantly. But as you know, I'm very focused on individual companies, their ability to grow earnings, to realize and sort of create value over time. So as an individual investor focused on individual companies, that can draw up great opportunities. so when the market is impacted by these headlines, that can create good opportunities. You've seen us capitalize on that last year with the downturn. We actually put more money to work. We saw the gearing in the portfolio pick up. We've actually pulled that back somewhat with the recovery, but I just say that volatility in the market is really what can create a lot of opportunities for the investor. And does it also show that investors should be patient and think long term, particularly investing in a China-focused strategy? Yeah, absolutely. It's important to have that long-term view. That's what we do when we look at individual companies. We think about the prospects for individual businesses over the longer term. So I think likewise for investors, take the long-term view as we do. Dale, thanks for coming in today. Thanks, Al. That's all we have time for today. You can check out the rest of our Insider Interview on our YouTube channel where you can like and subscribe. Hopefully see you next time.