Chinese recovery is already under way, says Bolton Fund manager Anthony Bolton believes he'll be proved right on his Chinese bet. The legendary small company investment specialist came out of retirement two years ago to launch a China Special Situations fund. But returns have been disappointing so far for the army of investors who backed him. But Mr Bolton flew over from his Hong Kong home this week for an exclusive interview with The Independent where he offered good news for concerned investors in his fund. "My personal view is that we're already in a recovery in China," he said. Mr Bolton achieved consistent growth of 20 per cent a year for 28 years while managing the Fidelity Special Situations fund. But returns on the new trust have been poor. It lost 34 per cent of its value last year and was fifth out of six investment trusts in its sector. "But something quite important changed in November," he said. For most of the time I've been out there, the monetary authorities have been tightening monetary policy. But in November they cut what is known as the reserve rate requirement for banks, and then cut it again last weekend. He said the move was important because periods of easing are good for stock markets. "It creates a much more favourable background for stock markets," he said. Inflation has also fallen quite a bit, to 4.5 per cent from 6 per cent, which helps. But he also said the improving global economic position would help. I'm generally optimistic about world stock markets, and China is part of that. What's important in my business is not what the outlook is like, but what is discounted in prices. There are challenges out there, but I think that has already been reflected in prices. Mr Bolton pointed out that China stock valuations are now at near 10-year lows. "Long-term valuations are very useful and you want to be bullish when they're low," he said. He invests in small to medium-sized businesses and has around 120 in his portfolio. While such stocks can be riskier than large corporates, he thinks the potential rewards are worth it. Mr Bolton believes the recovery in Chinese stocks is already reflected in large cap companies, but has yet to hit the smaller ones in which he's invested. If he's right, and his fund starts to outperform the rest of the index, his decision to come out of retirement will be vindicated. But that is the short-term. Investors remain worried about what will happen to the Fidelity China Special Situations next year. Rumours remain that Mr Bolton will return from Hong Kong after April 2013, the date until which he initially agreed to manage the fund. Will he retire then? "I can't answer that yet," he said. All I can say is that I'll be there until at least April 2013 and before our AGM in July I will say whether or not I'm stopping or going on. I'm considering different factors. Mr Bolton's full interview will be published in The Independent next week