Top Investment Guru Wrong about Investing in China

Using Western principles to understand Chinese economic data does not work, because the information provided is not always true. (Primoz Jenko / 123rf.com)
Using Western principles to understand Chinese economic data does not work, because the information provided is not always true. (Primoz Jenko / 123rf.com)

Anthony Bolton, nicknamed the “European Stock God,” admitted before he retired that he had misjudged the market in China. He officially retired from managing Fidelity China Special Situations fund this March at the end of a 35-year career.

Bolton said on his last day, March 31, that he was disappointed in China’s market situation, but relieved to come clean about being wrong. He told the Financial Times that he had “made a big play to ‘new China,’” but could not duplicate his success this time, adding: “I thought it would go up for four years, but it has gone down for more than four years.”

China’s financial statements forged

In another interview with the Financial Times last June, when Bolton announced his forthcoming retirement, he said it is a big challenge in China to distinguish whether what people say is genuine. At the time, there were numerous fraud cases concerning Chinese companies’ financial statements, and Bolton had hired five corporate intelligence agencies to investigate his portfolio companies. They contacted each company’s suppliers, customers, and competitors in search of abnormalities.

The results came as a big surprise to Bolton. He discovered that one of his investment companies owned less than half the stores claimed, and of the four supposedly biggest clients serviced by another company, three knew nothing about it.

Bolton said that in China, people can be very creative when it comes to cheating.

Carson Block, founder of Muddy Waters Research, once said that you have to learn bitter lessons in China to understand how to invest there. He said they will sell you out for $1 today, instead of working together to make $2 for the next three years.

Several international organizations and well-known experts from investment institutes also made multiple mistakes when estimating economic data in China. Using Western principles to understand Chinese economic data does not work, because the information provided is not always true.

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