Half-year Report

Fidelity China Special Situations PLC

Half-Yearly results for the six months ended 30 September 2019 (unaudited)

Financial Highlights:

• Fidelity China Special Situations PLC’s (the “Company”) Net Asset Value (“NAV”) per Share total return was -5.9% in the 6 months to 30 September 2019 compared to the MSCI China Index (the Benchmark Index) total return of -3.3%. The Company’s Share Price total return was -6.0%.

• Despite the 6 month returns, the NAV and Share Price performance (on a total return basis) over five years, and since launch, remain well ahead of the Benchmark Index.

• The Ongoing Charge (the costs of running the Company) for the 6 months ended 30 September 2019 was 0.98% compared to 1.02% as at the year ended 31 March 2019. The main factor for the reduction was the revised management fee structure.

• Valuations across the portfolio are back to levels not seen since the A-share driven correction in 2015, creating an opportune entry point for investors.

Contacts

For further information, please contact:

Bonita Guntrip

Senior Company Secretary

01737 837320

FIL Investments International

PORTFOLIO MANAGER’S HALF-YEARLY REVIEW

PORTFOLIO PERFORMANCE OVER THE SIX MONTH INTERIM PERIOD
Over the period from 1 April 2019 to 30 September 2019, the portfolio’s NAV declined by -5.9%. During this period, the MSCI China Index returned -3.3%, while the Company’s share price returned -6.0%. The underperformance against the Benchmark was due largely to gearing and a larger than Benchmark weighting in small and medium sized companies.

COMPANY SPECIFIC INFLUENCES ON PORTFOLIO PERFORMANCE
As at 30 September 2019, the five largest positions held in the Company were Tencent Holdings, Alibaba Group, China Meidong Auto, China Pacific Insurance Group and China Life Insurance, comprising 36.9% of the gross asset exposure.

Bellwether stocks Tencent and Alibaba were caught in the market volatility witnessed during the review period. Tencent’s quarterly earnings reported during this time did not meet expectations and disappointed investors. A closer look at these results revealed that its mobile games segment performed well, driven by contribution from its new games, while its fintech business was also strong. We expect Tencent to retain its leadership position in the mobile games segment. However, pressure was felt from slower growth in advertising revenues. Nonetheless, Tencent remains closely linked to Chinese consumption trends with over one billion active users of its WeChat messaging service. The potential to increase monetisation of this customer base remains significant.

Alibaba continued to deliver impressive growth across most of its business lines despite the broader macroeconomic headwinds. The e-commerce leader maintained the momentum of improved penetration in its core e-commerce business as it continued to target less developed areas. It was encouraging to observe its increased emphasis on disciplined cost control. The company maintains its dominant position in cloud and financial services via Ant Financial.

Strong performance was seen over the reporting period from selected consumption-led positions. These included the conviction holding in China MeiDong Auto, a prominent automobile dealership network, and exposure to sportswear apparel company, Li Ning. China MeiDong Auto focuses on the premium car segment in China, which exceeded expectations and bucked the downward trend seen in overall car sales in China over the review period. China MeiDong Auto therefore surpassed earnings growth estimates amid strong volume growth in Porsche, BMW and Lexus sales. Li Ning’s business turnaround became quite evident in the six months to September, and the apparel company’s multi-year margin growth prospects have become clearer. Meanwhile, a holding in China Biologic Products added value as its recent quarterly results enthused investors and the company subsequently received a bid at a premium valuation from a consortium of investors.

The position in Hutchison China MediTech detracted from returns after its largest shareholder reduced its stake to realise some value from its long-term holding. In doing so, the parent company accepted a discounted valuation, which hurt sentiment towards this biotechnology company. Hutchison China MediTech continues to see solid cash flows from its traditional Chinese medicine business and continues to report encouraging developments in its oncology drug development.

Chinese wealth management specialist Noah Holdings experienced fraud-related losses in one of its supply chain financing products. The management engaged pro-actively and extensively in the subsequent evaluation and reviewed all its products comprehensively. I expect some impact to investment flows short-term but am confident the company can recover and that its long-term positioning in a market with significant growth potential remains unchanged. I have added to the position.

Not owning Ping An Insurance also hurt relative returns as an ongoing buyback programme, as well as speculation about a spin-off of its subsidiary Lufax, supported its shares. The portfolio’s preferred insurance holdings, China Pacific Insurance and China Life Insurance, offer a more attractive risk-reward given more attractive valuations and greater potential earnings growth. Investors overlooked Aurora Mobile’s (Jiguang) noteworthy rise in quarterly revenues, preferring to focus on the mobile big-data solutions platform’s loss, which exceeded estimates.

UNLISTED POSITIONS
The Company continues to be active in the unlisted domain. At the end of the period under review, the following unlisted names were held: ByteDance, SenseTime, DJI International, Xiaoju Kuaizhi (‘Didi Chuxing’) and Shanghai Yiguo (‘Yiguo’). This aggregated to a 5.8% exposure to unlisted investments at the end of the period under review. In the prevailing market environment, the valuations of some of the unlisted investments have been prudently reduced as some IPO timelines stretch out and business conditions change, while in other cases valuations have increased as companies make share issues at higher values than our cost price. There is still significant activity in the pre-IPO space in China and we continue to actively evaluate opportunities, maintaining a consistent, disciplined approach towards valuations.

PORTFOLIO ACTIVITY
The activity in the portfolio during the recent volatile market environment has been focused on areas where an indiscriminate sell-off creates opportunities. Against the current market backdrop, there has been a low tolerance for stock specific disappointments and, as a result, investors have, in many cases, overlooked the underlying strength of market positions and business models. Therefore, I have been selectively adding to long positions with increasingly compelling risk-reward.

I have also realised gains and taken some profits in some consumption-led holdings where the investment thesis is gaining wider recognition and increased valuation premiums mean a less attractive risk-reward profile. Some exposure was also reduced in areas such as hospitality and logistics services.

US-CHINA TRADE CONFLICT
The trade conflict between the US and China which has resulted in higher tariffs has clearly dominated market sentiment since early 2018, and we are still awaiting the phase 1 trade agreement. It is quite evident that the China-US dynamics have meaningfully shifted away from the status quo that had prevailed up until the trade issue assumed centre stage. Chinese companies directly impacted by tariffs have already begun to factor in the impact of the tariffs both in their earnings as well as their capital expenditure plans. Having said that, Chinese exports to the US as a percentage of their total exports globally has been trending downwards as China has expanded its global reach and trading partners. The greater concern is how the uncertainty impacts business and consumer sentiment and thus capital expenditure and consumption decisions.

Pricing power is a core area of focus in Fidelity’s company analysis; it is clearly important when we are analysing tariffs and a company’s ability to pass on higher costs. The portfolio continues to focus on businesses which derive their revenues from the domestic China market and can benefit from the structural expansion of China’s middle class. When we analyse revenues for the companies in the portfolio, only 1.5% of total revenues are from the US and over 90% of revenues come from Greater China, as at 30 September 2019. Given these factors, the sell-off we have seen in a number of names in the portfolio looks overdone and has provided opportunities to add to positions.

CHINA’S ECONOMIC OUTLOOK
We have seen a clear slowdown in Chinese economic activity. While trade war uncertainty has clearly weighed on business sentiment, tighter credit conditions, especially around some of the so-called “shadow banking” sectors has played a part in my view. The government is now more clearly on the front foot with increased actions to improve liquidity and support domestic demand. It is also key to reiterate that, even at this slower pace, the relative rate of growth we see in China remains significant when compared to the West. China is also maintaining the momentum in its plans of opening up its capital markets and the recent removal of the Qualified Foreign Institutional Investor quotas (QFII quotas) in September reflects this intention. There also remains considerable policy headroom in the economy to stimulate growth, and we have seen several approaches taken to lower borrowing costs in the economy.

While the pace of growth is tapering, structural changes continue to unfold in China. Thus, even at a milder pace of activity, there remains room for expansion with the shifts in demand patterns. China continues to provide a diverse opportunity set where the growth rate is not homogenous across the board and where Fidelity’s research resources on the ground can help identify winners that are yet overlooked by the broader market. This is evidenced by the relative strength of the premium sector within broader weakness in the automobile market, which has benefited holdings in the portfolio such as auto dealer China MeiDong. In the recently completed 11 November Singles Day, gross merchandise value grew 26% to US$38bn, eclipsing predictions of Thanksgiving, Black Friday and Cyber Monday combined.

THE ROLE OF ESG IN THE PORTFOLIO
Sustainable investing is becoming more important for both investors and corporates. Companies with strong sustainable characteristics have reduced downside risk and increasingly benefit from a lower cost of capital. Our approach to sustainable investing encompasses engagement, integration and collaboration. We favour engagement over exclusion as positive influences on corporate behaviour add real value for companies, our investors and society.

The priority themes that have formed part of the Company’s recent ESG engagements include supply chain sustainability and corporate sustainability reporting. As part of the supply chain sustainability evaluation, a detailed engagement was conducted with Li Ning as we recognised that Chinese apparel producers could be exposed to significant operational and reputational risks due to inefficient supply chain management. Our analysis showed that Li Ning was a high performer – employee rights and protections form part of their quality assessment of suppliers and the company conducts regular on-site audits. Li Ning also has an environmental management system in place for material suppliers and not only does the company enhance environmental awareness with their suppliers, they also encourage the focus suppliers have on social risk awareness.

OUTLOOK
It is widely known that China is a volatile market, where sentiment can swing sharply. Given the unenthusiastic news surrounding China in recent months, the fact that worst case scenarios (such as the potential for full tariffs on all China exports to the US) are widely discussed gives comfort as an investor that potential downside is significantly factored in to market valuations. Whilst I remain optimistic on prospects for a trade deal to be reached, as highlighted in this and previous reports, the portfolio’s holdings are predominantly domestic focused. Chinese growth prospects remain attractive relative to its global peers in the West, and the policy impetus continues to favour domestic consumption drivers. The ongoing A-share inclusion in global equity indices is also supportive of investor interest towards Chinese stock markets.

We continue to highlight the significant valuation gap between large and small cap segments of the China market. Any closing of this gap is likely to benefit our NAV and relative performance.

Looking across valuations within the portfolio overall, we are back to levels last seen after the sharp A-share driven correction in 2015, which was an opportune entry point for investors. I continue to see significant opportunities in well-managed companies growing strongly on the back of the structural shifts discussed above, unfairly penalised by macro and trade concerns that will have little impact on the ability of these companies to continue growing earnings over the mid-term.

DALE NICHOLLS
Portfolio Manager

26 November 2019

INTERIM MANAGEMENT REPORT

GEARING
The Company has a three-year unsecured fixed rate facility agreement with Scotiabank Europe PLC for US$150,000,000. The interest rate is fixed at 3.01% per annum until the facility terminates on 14 February 2020. It is anticipated that the Company will have new gearing facilities in place when the existing facility expires.

To achieve further gearing, the Company uses contracts for difference (“CFDs”) on a number of holdings in its portfolio.

At 30 September 2019, the Company’s gross gearing, defined as Gross Asset Exposure in excess of Net Assets, was 25.6% (31 March 2019: 26.1%; 30 September 2018: 26.0%). Net gearing which nets off short positions was 22.2% (31 March 2019: 20.9%; 30 September 2018: 18.4%). The level of gearing is determined by the Manager within the limit set by the Company’s Prospectus of 30% for gross gearing.

DISCOUNT MANAGEMENT
The Board recognises that the Company’s share price is affected by the interaction of supply and demand in the market and investor sentiment towards China and the performance of the NAV per share. As reported in the Annual Report for the year ended 31 March 2019, the Board has adopted a formal discount control policy whereby it seeks to maintain the discount in single digits in normal market conditions and will, subject to market conditions, repurchase shares with the objective of stabilising the share price discount within a single digit range.

The Company’s discount widened slightly from 7.9% at the start of the reporting period to 8.1% at the end of the reporting period. The Board authorised the repurchase of 480,000 ordinary shares into Treasury during the period.

These share repurchases will have benefited shareholders as the NAV per share has been increased by purchasing shares at a discount. Since the end of the reporting period and as at the date of this report, the Company has repurchased a further 110,000 ordinary shares into Treasury.

ONGOING CHARGES
The Ongoing Charge (the costs of running the Company) for the six months ended 30 September 2019 was 0.98% compared to 1.02% for the comparable period last year. The main factor for this reduction is because the Company has benefited from the revised management fee structure which came into operation on 1 July 2018.

BOARD OF DIRECTORS
Following nine years as a Director, David Causer stepped down from the Board at the conclusion of the Annual General Meeting (“AGM”) on 24 July 2019. This is in line with the Board’s succession plan. Mike Balfour succeeded David as Audit and Risk Committee Chairman following the AGM.

Linda Yueh was appointed to the Board on 1 June 2019 and was elected as a Director by shareholders at the AGM on 24 July 2019.

PRINCIPAL RISKS AND UNCERTAINTIES
The Board, with the assistance of the Alternative Investment Fund Manager (FIL Investment Services (UK) Limited/the “Manager”), has developed a risk matrix which, as part of the risk management and internal controls process, identifies the key risks and uncertainties faced by the Company.

The Board considers that the principal risks and uncertainties faced by the Company continue to fall into the following categories: market, economic and geopolitical, investment performance, key person, discount control, gearing, currency and cybercrime risks. Other risks facing the Company include tax and regulatory and operational (third party service providers) risks. Information on each of these risks is given in the Strategic Report section of the Annual Report for the year ended 31 March 2019 which can be found on the Company’s pages of the Manager’s website at www.fidelityinvestmenttrusts.com.

These principal risks and uncertainties have not materially changed in the six months to 30 September 2019 and are equally applicable to the remaining six months of the Company’s financial year.

TRANSACTIONS WITH THE MANAGERS AND RELATED PARTIES
The Manager has delegated the investment management (other than investment management of unlisted securities) to FIL Investment Management (Hong Kong) Limited. It has delegated the investment management of the unlisted securities and the company secretariat function to FIL Investments International. Transactions with the Managers and related party transactions with the Directors are disclosed in Note 15 below.

GOING CONCERN
The Directors have considered the Company’s investment objective, risk management policies, liquidity risk, credit risk, capital management policies and procedures, the nature of its portfolio (being mainly securities which are readily realisable) and its expenditure and cash flow projections and have concluded that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis in preparing these Financial Statements.

By order of the Board.

FIL Investments International

26 November 2019

DIRECTORS’ RESPONSIBILITY
The Disclosure and Transparency Rules (“DTR”) of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements.

The Directors confirm to the best of their knowledge that:

a)     the condensed set of Financial Statements contained within this Half-Yearly Report has been prepared in accordance with the International Accounting Standards 34: “Interim Financial Reporting”; and

b)    the Interim Management Report, including the Portfolio Manager’s Half-Yearly Review above, includes a fair review of the information required by DTR 4.2.7R and 4.2.8R.

The Half-Yearly Report has not been audited or reviewed by the Company’s Independent Auditor.

The Half-Yearly Report was approved by the Board on 26 November 2019 and the above responsibility statement was signed on its behalf by Nicholas Bull, Chairman.

TWENTY LARGEST HOLDINGS AS AT 30 SEPTEMBER 2019

The Gross Asset Exposures shown below measure the exposure of the Company’s portfolio to market price movements in the shares owned or in the shares underlying the derivative instruments. The Fair Value is the value the portfolio could be sold for and is the value shown on the Balance Sheet. Where a contract for difference (‘CFD’) is held, the Fair Value reflects the profit or loss on the contract since it was opened and is based on how much the share price of the underlying share has moved.

	Gross Asset Exposure		Fair  Value  £’000
	£’000	%1
Long Exposures – shares unless otherwise stated Tencent Holdings (shares and long CFD)
Internet, mobile and telecommunications service provider	180,024	13.9	128,351
Alibaba Group Holding (shares and long CFD)
e-commerce group	131,223	10.1	124,733
China MeiDong Auto Holdings
Automobile dealership and maintenance group	69,101	5.3	69,101
China Pacific Insurance Group (shares and long CFDs)
Insurance company	57,708	4.5	(1,541)
China Life Insurance Company (shares and long CFD)
Insurance company	39,467	3.1	(4,658)
SKSHU Paint Company
Paint manufacturing company	28,978	2.2	28,978
China Biologic Products Holdings
Blood plasma-based biopharmaceutical company	28,901	2.2	28,901
21Vianet Group
Internet and data centre service provider	27,171	2.1	27,171
Kingdee International Software Group (long CFD)
Enterprise management and e-commerce software company	26,343	2.0	4,697
Kingsoft (shares and long CFD)
Software and internet services company	26,171	2.0	4,779
Noah Holdings
Asset managers	25,873	2.0	25,873
Hutchison China MediTech
Pharmaceutical and healthcare group	25,067	2.0	25,067
WuXi AppTec
Pharmaceutical, biopharmaceutical and medical device outsourcing provider	24,195	1.9	24,195
New Oriental Education & Technology Group
Private educational service provider	23,528	1.8	23,528
Xiaoju Kuaizhi ('Didi Chuxing') (unlisted)
Mobile taxi booking applications developer	23,394	1.8	23,394
Li Ning
Sporting goods manufacturer	22,006	1.7	22,006
DJI International (unlisted)
Manufacturer of drones	20,947	1.6	20,947
Kweichow Moutai
Moutai liquor producer and distributor	20,797	1.6	20,797
Zhejiang Dahua Technology
Provider of video surveillance products and services	20,715	1.6	20,715
China Taiping Insurance Holdings (shares and long CFD)
Insurance company	20,672	1.6	(3,044)
	---------------------	---------------------	---------------------
Twenty largest long exposures	842,281	65.0	613,990
Other long exposures	849,137	65.5	695,667
	---------------------	---------------------	---------------------
Total long exposures before hedges (150 holdings)	1,691,418	130.5	1,309,657
	============	============	============
Less: Hedging Exposure
iShares FTSE A50 China Index ETF (short CFDs)	(28,088)	(2.2)	1,998
Hang Seng China Enterprises Index (future)	(40,479)	(3.1)	193
Hang Seng Index (put option)	(16,236)	(1.3)	1,030
	---------------------	---------------------	---------------------
Total hedging exposures	(84,803)	(6.6)	3,221
	---------------------	---------------------	---------------------
Total long exposures after the netting of hedges	1,606,615	123.9	1,312,878
Add: short exposures
Short CFDs (3 holdings)	11,752	0.9	(240)
Options (2 holdings)	10,392	0.8	759
	---------------------	---------------------	---------------------
	22,144	1.7
	---------------------	---------------------
Gross Asset Exposure2	1,628,759	125.6
	============	============
Portfolio Fair Value3, 4			1,313,397
Net current liabilities excluding derivative instruments			(17,006)
			---------------------
Net Assets			1,296,391
			============

1   Gross Asset Exposure is expressed as a percentage of net assets.

2   Gross Asset Exposure comprises market exposure to investments of £1,387,576,000 plus market exposure to derivative instruments of £241,183,000.

3   Portfolio Fair Value comprises Investments of £1,387,576,000 plus derivative assets of £11,924,000 less derivative liabilities of £86,103,000 (per the Balance Sheet below).

4   At 30 September 2019, the Company held 5 unlisted instruments with a fair value of £74,866,000 representing 5.8% of Gross Asset Exposure (31 March 2019: 5 unlisted instruments with a fair value of £66,686,000 representing 4.8% of Gross Asset Exposure).

INCOME STATEMENT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2019

		six months ended 30 September 2019 unaudited			year ended 31 March 2019 audited			six months ended 30 September 2018 unaudited
	Notes	revenue  £’000	capital  £’000	total  £’000	revenue  £’000	capital  £’000	total  £’000	revenue  £’000	capital  £’000	total  £’000
Revenue
Investment income	4	18,837	–	18,837	19,359	–	19,359	17,125	–	17,125
Derivative income	4	8,435	–	8,435	10,287	–	10,287	9,748	–	9,748
Other income	4	941	–	941	1,264	–	1,264	140	–	140
		-----------------	-----------------	-----------------	-----------------	-----------------	-----------------	-----------------	-----------------	-----------------
Total income		28,213	–	28,213	30,910	–	30,910	27,013	–	27,013
		==========	==========	==========	==========	==========	==========	==========	==========	==========
Losses on investments at fair value through profit or loss		–	(55,384)	(55,384)	–	(25,386)	(25,386)	–	(84,752)	(84,752)
Losses on derivative instruments		–	(41,507)	(41,507)	–	(51,505)	(51,505)	–	(58,811)	(58,811)
Foreign exchange gains on other net assets		–	6,195	6,195	–	3,878	3,878	–	4,940	4,940
Foreign exchange losses on bank loans		–	(6,606)	(6,606)	–	(8,357)	(8,357)	–	(7,950)	(7,950)
		-----------------	-----------------	-----------------	-----------------	-----------------	-----------------	-----------------	-----------------	-----------------
Total income and losses		28,213	(97,302)	(69,089)	30,910	(81,370)	(50,460)	27,013	(146,573)	(119,560)
		==========	==========	==========	==========	==========	==========	==========	==========	==========
Expenses
Investment management fees	5	(1,511)	(3,199)	(4,710)	(3,195)	(8,348)	(11,543)	(1,788)	(5,363)	(7,151)
Other expenses		(598)	–	(598)	(1,214)	–	(1,214)	(614)	–	(614)
		-----------------	-----------------	-----------------	-----------------	-----------------	-----------------	-----------------	-----------------	-----------------
Profit/(loss) before finance costs and taxation		26,104	(100,501)	(74,397)	26,501	(89,718)	(63,217)	24,611	(151,936)	(127,325)
Finance costs	6	(2,038)	(6,114)	(8,152)	(3,490)	(10,470)	(13,960)	(1,601)	(4,805)	(6,406)
		-----------------	-----------------	-----------------	-----------------	-----------------	-----------------	-----------------	-----------------	-----------------
Profit/(loss) before taxation		24,066	(106,615)	(82,549)	23,011	(100,188)	(77,177)	23,010	(156,741)	(133,731)
Taxation	7	(748)	259	(489)	(688)	–	(688)	(972)	321	(651)
		-----------------	-----------------	-----------------	-----------------	-----------------	-----------------	-----------------	-----------------	-----------------
Profit/(loss) after taxation for the period		23,318	(106,356)	(83,038)	22,323	(100,188)	(77,865)	22,038	(156,420)	(134,382)
		-----------------	-----------------	-----------------	-----------------	-----------------	-----------------	-----------------	-----------------	-----------------
Earnings/(loss) per ordinary share	8	4.24p	(19.36p)	(15.12p)	4.06p	(18.21p)	(14.15p)	4.00p	(28.39p)	(24.39p)
		-----------------	-----------------	-----------------	-----------------	-----------------	-----------------	-----------------	-----------------	-----------------

The Company does not have any income or expenses that are not included in the profit/(loss) after taxation for the period. Accordingly the profit/(loss) after taxation for the period is also the total comprehensive income for the period and no separate Statement of Comprehensive Income has been presented.

The total column of this statement represents the Income Statement of the Company and is prepared in accordance with IFRS. The revenue and capital columns are supplementary and presented for information purposes as recommended by the Statement of Recommended Practice issued by the AIC.

All the profit/(loss) and total comprehensive income is attributable to the equity shareholders of the Company. There are no minority interests.

No operations were acquired or discontinued in the period and all items in the above statement derive from continuing operations.

Statement of Changes in Equity for the six months ended 30 September 2019

	Notes	share  capital  £’000	share  premium  account  £’000	capital  redemption  reserve  £’000	other  reserve  £’000	capital  reserve  £’000	revenue  reserve  £’000	total  equity  £’000
Six months ended 30 September 2019 (unaudited)
Total equity at 31 March 2019		5,713	211,569	914	331,362	818,370	33,660	1,401,588
Repurchase of ordinary shares	13	–	–	–	(1,006)	–	–	(1,006)
(Loss)/profit after taxation for the period		–	–	–	–	(106,356)	23,318	(83,038)
Dividend paid	9	–	–	–	–	–	(21,153)	(21,153)
		-----------------	-----------------	-----------------	-----------------	-----------------	-----------------	-----------------
Total equity at 30 September 2019		5,713	211,569	914	330,356	712,014	35,825	1,296,391
		==========	==========	==========	==========	==========	==========	==========
Year ended 31 March 2019 (audited)
Total equity at 31 March 2018		5,713	211,569	914	335,493	918,558	30,619	1,502,866
Repurchase of ordinary shares	13	–	–	–	(4,131)	–	–	(4,131)
(Loss)/profit after taxation for the year		–	–	–	–	(100,188)	22,323	(77,865)
Dividend paid	9	–	–	–	–	–	(19,282)	(19,282)
		-----------------	-----------------	-----------------	-----------------	-----------------	-----------------	-----------------
Total equity at 31 March 2019		5,713	211,569	914	331,362	818,370	33,660	1,401,588
		==========	==========	==========	==========	==========	==========	==========
Six months ended 30 September 2018 (unaudited)
Total equity at 31 March 2018		5,713	211,569	914	335,493	918,558	30,619	1,502,866
Repurchase of ordinary shares	13	–	–	–	(2,666)	–	–	(2,666)
(Loss)/profit after taxation for the period		–	–	–	–	(156,420)	22,038	(134,382)
Dividend paid	9	–	–	–	–	–	(19,282)	(19,282)
		-----------------	-----------------	-----------------	-----------------	-----------------	-----------------	-----------------
Total equity at 30 September 2018		5,713	211,569	914	332,827	762,138	33,375	1,346,536
		==========	==========	==========	==========	==========	==========	==========

Balance Sheet as at 30 September 2019 Company number 7133583

	Notes	30.09.19  unaudited  £’000	31.03.19  audited  £’000	30.09.18  unaudited  £’000
Non current assets
Investments at fair value through profit or loss	10	1,387,576	1,423,161	1,412,941
		-------------------	-------------------	-------------------
Current assets
Derivative instruments	10	11,924	19,235	22,217
Amounts held at futures clearing houses and brokers		77,356	81,451	84,977
Other receivables	11	2,403	737	5,651
Cash and cash equivalents		29,224	86,963	42,764
		-------------------	-------------------	-------------------
		120,907	188,386	155,609
		===========	===========	===========
Current liabilities
Derivative instruments	10	(86,103)	(90,161)	(101,579)
Bank loans		(121,912)	(115,331)	–
Other payables	12	(4,077)	(4,467)	(5,510)
		-------------------	-------------------	-------------------
		(212,092)	(209,959)	(107,089)
		-------------------	-------------------	-------------------
Net current (liabilities)/assets		(91,185)	(21,573)	48,520
		-------------------	-------------------	-------------------
Total assets less current liabilities		1,296,391	1,401,588	1,461,461
		===========	===========	===========
Non-current liabilities
Bank loans		–	–	(114,925)
Net assets		1,296,391	1,401,588	1,346,536
Equity attributable to equity shareholders
Share capital	13	5,713	5,713	5,713
Share premium account		211,569	211,569	211,569
Capital redemption reserve		914	914	914
Other reserve		330,356	331,362	332,827
Capital reserve		712,014	818,370	762,138
Revenue reserve		35,825	33,660	33,375
		-------------------	-------------------	-------------------
Total equity		1,296,391	1,401,588	1,346,536
		===========	===========	===========
Net asset value per ordinary share	14	236.10p	255.03p	244.68p
		===========	===========	===========

Cash Flow Statement for the six months ended 30 September 2019

	six months  ended  30 September  2019  unaudited  £’000	year ended  31 March  2019  audited  £’000	six months  ended  30 September  2018  unaudited  £’000
Operating activities
Cash inflow from investment income	17,372	19,592	16,054
Cash inflow from derivative income	8,118	10,271	8,957
Cash inflow from other income	941	1,264	140
Cash outflow from Directors' fees	(83)	(207)	(109)
Cash outflow from other payments	(5,250)	(13,180)	(7,250)
Cash outflow from the purchase of investments	(176,779)	(452,059)	(259,285)
Cash outflow from the purchase of derivatives	(1,897)	(8,770)	(8,486)
Cash inflow from the sale of investments	157,387	502,367	258,885
Cash (outflow)/inflow from the settlement of derivatives	(36,447)	30,959	31,792
Cash inflow/(outflow) from amounts held at futures clearing houses and brokers	4,095	(51,204)	(54,976)
	-------------------	-------------------	-------------------
Net cash (outflow)/inflow from operating activities before servicing of finance	(32,543)	39,033	(14,278)
	===========	===========	===========
Financing activities
Cash outflow from loan interest paid	(1,860)	(3,538)	(1,736)
Cash outflow from CFD interest paid	(6,445)	(7,380)	(2,909)
Cash outflow from short CFD dividends paid	(927)	(2,056)	(1,744)
Cash outflow from the repurchase of ordinary shares	(1,006)	(4,131)	(2,666)
Cash outflow from dividends paid to shareholders	(21,153)	(19,282)	(19,282)
	-------------------	-------------------	-------------------
Cash outflow from financing activities	(31,391)	(36,387)	(28,337)
	===========	===========	===========
(Decrease)/increase in cash and cash equivalents	(63,934)	2,646	(42,615)
Cash and cash equivalents at the start of the period	86,963	80,439	80,439
Effect of foreign exchange movements	6,195	3,878	4,940
	-------------------	-------------------	-------------------
Cash and cash equivalents at the end of the period	29,224	86,963	42,764
	===========	===========	===========

Notes to the Financial Statements

1 PRINCIPAL ACTIVITY
Fidelity China Special Situations PLC is an Investment Company incorporated in England and Wales with a premium listing on the London Stock Exchange. The Company’s registration number is 7133583, and its registered office is Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey, KT20 6RP. The Company has been approved by HM Revenue & Customs as an Investment Trust under Section 1158 of the Corporation Tax Act 2010 and intends to conduct its affairs so as to continue to be approved.

2 PUBLICATION OF NON-STATUTORY ACCOUNTS
The Financial Statements in this Half-Yearly Financial Report have not been audited or reviewed by the Company’s Independent Auditor and do not constitute statutory accounts as defined in section 434 of the Companies Act 2006 (the “Act”). The financial information for the year ended 31 March 2019 is extracted from the latest published Financial Statements of the Company. Those Financial Statements were delivered to the Registrar of Companies and included the Independent Auditor’s Report which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Act.

3 BASIS OF PREPARATION
These Half-Yearly Financial Statements have been prepared in accordance with International Accounting Standard 34: Interim Financial Reporting and use the same accounting policies as set out in the Company’s Annual Report and Financial Statements for the year ended 31 March 2019. Those Financial Statements were prepared in accordance with International Financial Reporting Standards (“IFRS”), to the extent that they have been adopted by the European Union, the Companies Acts that apply to companies reporting under IFRS, IFRC interpretations and, as far as it is consistent with IFRS, the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts (“SORP”) issued by the Association of Investment Companies (“AIC”), in November 2014, and updated in February 2018 with consequential amendments.

4 INCOME

	six months  ended  30.09.19  unaudited  £’000	year ended  31.03.19  audited  £’000	six months  ended  30.09.18  unaudited  £’000
Investment income
Overseas dividends	18,837	19,359	17,125
	-------------------	-------------------	-------------------
Derivative income
Dividends on long CFDs	7,920	9,797	9,638
Interest on short CFDs	515	490	110
	-------------------	-------------------	-------------------
	8,435	10,287	9,748
	===========	===========	===========
Other income
Interest received on collateral and deposits	941	1,264	140
	-------------------	-------------------	-------------------
Total income	28,213	30,910	27,013
	===========	===========	===========

No special dividends have been recognised in capital (year ended 31 March 2019: £1,393,000 and six months ended 30 September 2018: £1,393,000).

5 INVESTMENT MANAGEMENT FEES

	revenue  £’000	capital  £’000	total  £’000
Six months ended 30 September 2019 (unaudited)
Investment management fees – base	1,511	4,532	6,043
Investment management fees – variable	–	(1,333)	(1,333)
	-------------------	-------------------	-------------------
	1,511	3,199	4,710
	===========	===========	===========
Year ended 31 March 2019 (audited)
Investment management fees – base	3,195	9,585	12,780
Investment management fees – variable	–	(1,237)	(1,237)
	-------------------	-------------------	-------------------
	3,195	8,348	11,543
	===========	===========	===========
Six months ended 30 September 2018 (unaudited)
Investment management fees – base	1,788	5,363	7,151
	===========	===========	===========

FIL Investment Services (UK) Limited (a Fidelity group company) is the Company’s Alternative Investment Fund Manager (“the Manager”) and has delegated portfolio management to FIL Investment Management (Hong Kong) Limited and FIL Investments International (“the Investment Managers”).

From 1 July 2018 the Company adopted a new fee arrangement which reduced the base management fee from 1.00% of the net assets to 0.90% of net assets per annum and removed the performance fee of up to 1.00%. In addition, with effect from 1 October 2018, there has been a +/-0.20% variation fee based on the Company’s NAV per share performance relative to the Company’s Benchmark Index. Fees are payable monthly in arrears and are calculated on a daily basis.

6 FINANCE COSTS

	revenue  £’000	capital  £’000	total  £’000
Six months ended 30 September 2019 (unaudited)
Interest on bank loans and overdrafts	470	1,410	1,880
Interest paid on CFDs	1,336	4,009	5,345
Dividends paid on short CFDs	232	695	927
	-------------------	-------------------	-------------------
	2,038	6,114	8,152
	===========	===========	===========
Year ended 31 March 2019 (audited)
Interest on bank loans and overdrafts	892	2,676	3,568
Interest paid on CFDs	2,084	6,252	8,336
Dividends paid on short CFDs	514	1,542	2,056
	-------------------	-------------------	-------------------
	3,490	10,470	13,960
	===========	===========	===========
Six months ended 30 September 2018 (unaudited)
Interest on bank loans and overdrafts	446	1,339	1,785
Interest paid on CFDs	719	2,158	2,877
Dividends paid on short CFDs	436	1,308	1,744
	-------------------	-------------------	-------------------
	1,601	4,805	6,406
	===========	===========	===========

7 TAXATION

	revenue  £’000	capital  £’000	total  £’000
Six months ended 30 September 2019 (unaudited)
UK Corporation tax	259	(259)	–
Overseas taxation	489	–	489
	-------------------	-------------------	-------------------
Taxation charge for the period	748	(259)	489
	===========	===========	===========
Year ended 31 March 2019 (audited)
Overseas taxation	688	–	688
	-------------------	-------------------	-------------------
Taxation charge for the year	688	–	688
	===========	===========	===========
Six months ended 30 September 2018 (unaudited)
UK Corporation tax	321	(321)	–
Overseas taxation	651	–	651
	-------------------	-------------------	-------------------
Taxation charge for the period	972	(321)	651
	===========	===========	===========

8 EARNINGS/(LOSS) PER ORDINARY SHARE

	six months  ended  30.09.19  unaudited	year ended  31.03.19  audited	six months  ended  30.09.18  unaudited
Revenue earnings per ordinary share	4.24p	4.06p	4.00p
Capital loss per ordinary share	(19.36p)	(18.21p)	(28.39p)
	-------------------	-------------------	-------------------
Total loss per ordinary share	(15.12p)	(14.15p)	(24.39p)
	===========	===========	===========

The earnings/(loss) per ordinary share is based on the profit/(loss) after taxation for the period divided by the weighted average number of ordinary shares held outside Treasury during the period, as show below:

	£’000	£’000	£’000
Revenue profit after taxation for the period	23,318	22,323	22,038
Capital loss after taxation for the period	(106,356)	(100,188)	(156,420)
	-------------------	-------------------	-------------------
Total loss after taxation for the period	(83,038)	(77,865)	(134,382)
	===========	===========	===========
	number	number	number
Weighted average number of ordinary shares held outside Treasury	549,391,529	550,331,713	550,973,770
	===========	===========	===========

9 DIVIDENDS PAID TO SHAREHOLDERS

	six months  ended  30.09.19  unaudited  £’000	year ended  31.03.19  audited  £’000	six months  ended  30.09.18  unaudited  £’000
Dividend paid of 3.85 pence per ordinary share for the year ended 31 March 2019	21,153	–	–
Dividend paid of 3.50 pence per ordinary share for the year ended 31 March 2018	–	19,282	19,282
	-------------------	-------------------	-------------------
	21,153	19,282	19,282
	===========	===========	===========

No dividend has been declared for the six months ended 30 September 2019 (six months ended 30 September 2018: nil).

10 FAIR VALUE HIERARCHY
The Company is required to disclose the fair value hierarchy that classifies its financial instruments measured at fair value at one of three levels, according to the relative reliability of the inputs used to estimate the fair values.

Classification	Input
Level 1	Valued using quoted prices in active markets for identical assets
Level 2	Valued by reference to valuation techniques using observable inputs other than quoted prices included within level 1
Level 3	Valued by reference to valuation techniques using inputs that are not based on observable market data

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset. The valuation techniques used by the Company are as disclosed in the Company’s Annual Report for the year ended 31 March 2019 (Accounting Policies Notes 2(l) and (m) on pages 54 and 55). The table below sets out the Company’s fair value hierarchy:

30 September 2019 (unaudited)	level 1  £’000	level 2  £’000	level 3  £’000	total  £’000
Financial assets at fair value through profit or loss
Investments – shares	1,308,222	–	79,354	1,387,576
Derivative instrument assets	2,331	9,593	–	11,924
	-------------------	-------------------	-------------------	-------------------
	1,310,553	9,593	79,354	1,399,500
	===========	===========	===========	===========
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities	(349)	(83,278)	(2,476)	(86,103)
	===========	===========	===========	===========
Financial liabilities at fair value
Bank loan	–	(122,247)	–	(122,247)
	===========	===========	===========	===========

31 March 2019 (audited)	level 1  £’000	level 2  £’000	level 3  £’000	total  £’000
Financial assets at fair value through profit or loss
Investments – shares	1,356,458	–	66,703	1,423,161
Derivative instrument assets	–	19,235	–	19,235
	-------------------	-------------------	-------------------	-------------------
	1,356,458	19,235	66,703	1,442,396
	===========	===========	===========	===========
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities	(737)	(89,424)	–	(90,161)
	===========	===========	===========	===========
Financial liabilities at fair value
Bank loan	–	(114,111)	–	(114,111)
	===========	===========	===========	===========

30 September 2018 (unaudited)	level 1  £’000	level 2  £’000	level 3  £’000	total  £’000
Financial assets at fair value through profit or loss
Investments – shares	1,320,582	–	92,359	1,412,941
Derivative instrument assets	1,650	20,567	–	22,217
	-------------------	-------------------	-------------------	-------------------
	1,322,232	20,567	92,359	1,435,158
	===========	===========	===========	===========
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities	–	(101,579)	–	(101,579)
	===========	===========	===========	===========
Financial liabilities at fair value
Bank loan	–	(113,546)	–	(113,546)
	===========	===========	===========	===========

11 OTHER RECEIVABLES

	30.09.19  unaudited  £’000	31.03.19  audited  £’000	30.09.18  unaudited  £’000
Securities sold for future settlement	407	36	2,685
Accrued income	1,939	646	2,887
Other receivables	57	55	79
	-------------------	-------------------	-------------------
	2,403	737	5,651
	===========	===========	===========
12 OTHER PAYABLES
	30.09.19  unaudited  £’000	31.03.19  audited  £’000	30.09.18  unaudited  £’000
Securities purchased for future settlement	2,545	1,858	2,608
Investment management, secretarial and administration fees	782	820	2,047
Finance costs payable	–	1,100	–
Accrued expenses	750	689	855
	-------------------	-------------------	-------------------
	4,077	4,467	5,510
	===========	===========	===========

13 SHARE CAPITAL

	30 September 2019 Unaudited		31 March 2019 audited		30 September 2018 unaudited
	number of  shares	£’000	number of  shares	£’000	number of  shares	£’000
Issued, allotted and fully paid
Ordinary shares of 1 penny each – Held outside Treasury
Beginning of the period	549,574,480	5,496	551,414,480	5,514	551,414,480	5,514
Ordinary shares repurchased into Treasury	(480,000)	(5)	(1,840,000)	(18)	(1,100,000)	(11)
	-------------------	-------------------	-------------------	-------------------	-------------------	-------------------
End of the period	549,094,480	5,491	549,574,480	5,496	550,314,480	5,503
	===========	===========	===========	===========	===========	===========
Ordinary shares of 1 penny each – Held in Treasury*
Beginning of the period	21,780,000	217	19,940,000	199	19,940,000	199
Ordinary Shares repurchased into Treasury	480,000	5	1,840,000	18	1,100,000	11
	-------------------	-------------------	-------------------	-------------------	-------------------	-------------------
End of the period	22,260,000	222	21,780,000	217	21,040,000	210
	-------------------	-------------------	-------------------	-------------------	-------------------	-------------------
Total share capital		5,713		5,713		5,713
		===========		===========		===========

*    The shares held in Treasury carry no rights to vote, to receive a dividend or to participate in a winding up of the Company.

During the period the Company repurchased 480,000 (year ended 31 March 2019: 1,840,000 and six months ended 30 September 2018: 1,100,000) ordinary shares and held them in Treasury. The cost of repurchasing these shares of £1,006,000 (year ended 31 March 2019: £4,131,000 and six months ended 30 September 2018: £2,666,000) was charged to the Other Reserve.

14 NET ASSET VALUE PER ORDINARY SHARE
The net asset value per ordinary share is based on net assets of £1,296,391,000 (31 March 2019: £1,401,588,000 and 30 September 2018: £1,346,536,000) and on 549,094,480 (31 March 2019: 549,574,480 and 30 September 2018: 550,314,480) ordinary shares, being the number of ordinary shares held outside Treasury at the period end. It is the Company’s policy that shares held in Treasury will only be reissued at net asset value per ordinary share or at a premium to net asset value per ordinary share and, therefore, the shares held in Treasury have no dilutive effect.

15 TRANSACTIONS WITH THE MANAGERS AND RELATED PARTIES
FIL Investment Services (UK) Limited is the Company’s Alternative Investment Fund Manager and has delegated portfolio management to FIL Investment Management (Hong Kong) Limited and FIL Investments International. They are all Fidelity group companies.

Details of the current fee arrangements are given in Note 5 above. During the period management fees of £4,710,000 (year ended 31 March 2019: £11,543,000 and six months ended 30 September 2018: £7,151,000), and accounting, administration and secretarial fees of £50,000 (year ended 31 March 2019: £100,000 and six months ended 30 September 2018: £50,000) were payable to the Managers. Fidelity also provides the Company with marketing services. The total amount payable for these services during the period was £128,000 (year ended 31 March 2019: £238,000 and six months ended 30 September 2018: £117,000). Amounts payable to the Managers at the Balance Sheet date are included in other payables and are disclosed in Note 12 above.

At the date of this report, the Board consisted of five non-executive Directors all of whom are considered to be independent by the Board. None of the Directors has a service contract with the Company.

The Chairman receives an annual fee of £42,000, the Audit and Risk Committee Chairman receives an annual fee of £32,000, the Chairman of the Investment Committee receives an annual fee of £31,500, the Senior Independent Director receives an annual fee of £31,500 and each other Director receives an annual fee of £26,500. The following members of the Board hold ordinary shares in the Company at the date of this report: Mike Balfour 45,000 shares, Nicholas Bull 110,804 shares, Peter Pleydell-Bouverie 93,758 shares, Elisabeth Scott 19,819 shares and Linda Yueh 2,318 shares.

16 POST BALANCE SHEET EVENT
Additional financial information relating to Shanghai Yiguo was received during November 2019, resulting in the valuation of the holding being written down. If this decrease in value had been applied at 30 September 2019, the net assets of the Company would have decreased by 0.47%.

The financial information contained in this Half-Yearly Results Announcement does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the six months ended 30 September 2019 and 30 September 2018 has not been audited or reviewed by the Company’s Independent Auditor.

The information for the year ended 31 March 2019 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies, unless otherwise stated. The report of the Auditor on those financial statements contained no qualification or statement under sections 498(2) or (3) of the Companies Act 2006.

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

A copy of the Half-Yearly Report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/NSM

The Half-Yearly Report will also be available on the Company's website at www.fidelityinvestmenttrusts.com where up to date information on the Company, including daily NAV and share prices, factsheets and other information can also be found.