A record valuation gap with India and the engineering skills of the Chinese are why Nitin Bajaj holds 40% of Fidelity Asian Values (FAS ) in China and Hong Kong.

This is the first excerpt from our virtual event with the fund manager last month. If that whets your appetite you can watch the 45-minute ‘Big Broadcast’ of the whole programme.

Can’t watch now? Read the transcript

Nitin Bajaj:

We have a lot of money invested in China plus Hong Kong. Close to 40% and we continue to sell our positions in India and we continue to increase our positions in Indonesia. Let me go through why that is the case.

This is China versus India. I know this is a slightly busy slide, but the one I want you to focus on is the one on the bottom left. That’s the valuation of China versus valuation of India. The red line is the valuation of the Indian market. The blue line is the valuation of the Chinese market on price earnings. Grey line is the ratio of India to China. You can see this is as extreme as it’s almost ever been. At the moment, people have an absolute love affair with India and I don’t know, hate affair. Complete avoidance of China.

If you look versus Taiwan, it’s very similar. People absolutely love Taiwan because of technology supply chain. Taiwan’s the base of technology supply chain globally. So, when you talk AI, everything in AI has to do something with Taiwan. So, people just love Taiwan and again, dislike China.

So that’s why we are positioned this way. As a contrarian investor, always want to go to things that people dislike. So, in 2013, when I started running the Asia Small Companies Fund, I had a huge investment in India and not so much in China because at that time, people hated India and loved China. To me, the opportunities were where the cheap stocks are. Today, the cheap stocks are in China.

Like I always say, if you run a pasta business you want tomatoes to be cheap and the tomatoes are cheap in China today, not in India. I know you’ll bring up all the geopolitics and Trump’s won the election and what’s going to happen to China and we can discuss that in the Q&A if you want. I personally don’t see it as a big issue. In the first Trump presidency it wasn’t a big issue and I don’t see it as a big issue in the second Trump presidency either.

The basic reason for that is the Chinese education system. The amount of engineering talent, the amount of skill that China has built up over years is just incomparable to anything else in the world. It’s almost like whatever you throw at them, they find a way out. They’re just fantastic engineers and they just keep finding ways to continue to grow and do well.