Shares of Chinese companies listed in U.S. exchanges performed relatively well in July, spurring investor optimism. By term “relatively well” I mean compared to the DJIA or compared to previous months of the year. As the following chart tracking Chinese equities in Shanghai, Hong Kong and New York testifies, July was a comeback month for Chinese and American shares alike. The DJIA eked out a modest 2.1% gain for the month but the true beneficiaries were the U.S. listed Chinese equities. Looking at the performance of the China ADR Index in dark orange, the index gained an impressive 8.0% just in one month, closing in on the Hang Seng and the DJIA.

A near 20 percent correction in four weeks has wiped $700 billion off the Shanghai Stock Exchange, making global investors nervous about a possible China meltdown. Considering the 132% run of the Shanghai Composite in 2006 and a subsequent 125 percent run in 2007 before the current pullback, a bubble theory has ample room to develop. The question is this. Is there a bubble and if so how to hedge against that?

Can’t help but to start with a quote from the previous Newsletter, saying “Based on our cautious but still bullish outlook for the U.S. markets, coupled with our strong outlook for the China stock universe, we think October can potentially be another great month for China ADR investors”. And indeed, October turned out to be another great month—only for the smart investor! Chinavestor picked stock of the month, China Life Insurance (LFC), is trading above $100 vs. $88 at the beginning of the month. Plus Growth and Conservative Portfolios (Update on Page5) are ahead 13.8% and 11.0% , respectively.

Despite sluggish domestic stock performance China stock investors have a reason to cheer. All major Chinese indices ended 2007 on a high note, prompting questions how long the China bull will run.

As I'm reading an article today about a possible Chinas bubble, I came to a conclusion that I have to write about the story from another angle. The hawks got more and more out there to predict how big the China bubble is and when it bursts who will suffer most. I'm proving them WRONG.

I have a feeling that way too many investors don't understand how much Wall Street influences China ADR prices. Many say "I don't understand what U.S. subprime problem's got to do with China Mobile" They are right in their own turf but as the following two charts demonstrate, Wall Street has a tremendous impact on Hong Kong trading. On the contrary, Hong Kong trading has a negligible impact on the Street. And as you may know, China ADRs trading on U.S. exchanges follow Hong Kong prices. So you really should look into what moves Hong Kong.

Days like this offer great trading opportunity for the intelligent investor. For one, U.S. markets are shaky and for two, Beijing has told asset managers preparing to launch overseas stock investment funds to cut their exposure to Hong Kong. Bad combination for the market but great for the smart trader.

The last trading day of September was a happy one. Our favorite proxy for the overall China ADR* universe, the iShares FTSE/Xinhua China 25 Index (FXI), closed at $180.00 marking an exact 20% run over the month. What makes this rally even more remarkable is the strong underlying volume. We know that Hong Kong is the home market for the most prominent FXI components. So we found comfort in the news that Hong Kong blue chips rose 0.3 percent amid unprecedented volume on Friday, September 28th, closing out the quarter with their best gain since the end of 1999. The Hang Seng Index gained 13.6 percent for the month and 24.7 percent for the three months ended in September.

The good news is that both Hong Kong - NYSE listed airliners, China Eastern Airlines (CEA) and China Southern Airlines (ZNH) were hot in Hong Kong. CEA went up 7.4% while ZNH closed 4.5% higher. Air China (0753.HK), not listed in the U.S., went up 3.7%. Looks as if the market knows something. Think we should listen.

What a day we had on Thursday! Who would have thought things will look brilliant on Friday? Well, I did. Here is why: despite all major U.S. indices crumbling before the close, it became clear that it is due to extensive profit taking. What's wrong with that?

Looks as if price assymetry between Hong Kong and Shanghai double listed shares remains for sometime. What implications it has on U.S. listed Chinese ADRs?

Again, quality China stocks have more room to go, and I see no slowing down in Shanghai. Tomorrow, Tue will be a big day for China Shenhua Energy, China's larges coal miner. her IPO is well over subscribed and I just wonder how much she will pop during regular trading hours. 10-20-30 percent? In the meantime, China Life Insurance (LFC) still looks good to me, while Petrochina (PTR), CHALCO (ACH), China Unicom (CHU) and China Mobile (CHL) may be the victims for today's profit taking. But don't worry; they will come back sooner than you may think...

Strong market sentiment is expected to propel China ADRs even higher on Monday. Reasons and trading ideas.

Reflections on Hong Kong trading, negative S&P futurtes and some key reports coming out today. Overall, I expect China ADRs to pull back 4-6 percent on average today.

Hope you had steel nerves in August. Referring back to the main article in our previous Newsletter, “Strong stomach needed”, we could not have timed that article better. August turned out to be a heck of a month. U.S. subprime problems put pressure on equity markets globally, sinking our favorite proxy for U.S. listed Chinese stocks, the FXI, 15 percent by Aug 16th. Then the FED’s decision to lower inter-bank lending rates by a half point sent our benchmark up 20 percent by Aug 27th, just to see those gains evaporate the next day. Still, investor optimism fuelled the index to a 7.43 percent gain for the month, attributed to further rate-cut hopes and news that the U.S. governments would help tackle the subprime mortgage problem.

Investing in Chinese stocks can be nerve racking. Two to three percent price swings a day are common place many times amplifying into five percent over the course of a week. Who has the stomach for that?

What keeps Chinese stocks rising? Strong fundamentals, usch as earnings; excess money flooding Chinese exchanges; Yaun/$.U.S. exchange rate change.

Chinese stocks have risen since the notorious 9 percent intraday plunge in late February. As the matter of fact, the Shanghai Composite (^SSEC) is up almost 25 percent since the incident while the record breaking DJIA barely keeps space with such a sharp rally.

We are bullish on Chinese stocks. It seems to us however that average American investors got a distaste of China after the 9 percent plunge in Shanghai on February 26 that sent global equity markets south. As a result, March has been a very quiet month for us, stock researchers, while this was the time stock research would have been needed the most. We will get back to this later.

2006 was “The Year” for Chinese stocks. A seemingly unquenchable investor thirst for all things Chinese helped propel the Shanghai Composite Index to a 130% gain for the year, followed closely by the Hang Seng China Enterprise Index.

We have always prided ourselves with the performance of our stock picks e.g. “Stock of the Month”, our Growth and Conservative portfolios. Chinavestor premium subscribers, who receive the “Weekly Stock Recommendation”, are raving about the tool and its spectacular track record. And without a doubt, this year’s 65% performance so far is beating all standard benchmarks and indices.

While the premise of this article may be surprising to many, e.g. investing in China has never been more secure, the emergence of the Chinese markets is real, and recent events strongly support this premise. Who could have predicted only a short time ago that the IPO of the Industrial and Commercial Bank of China (ICBC) on October 27 would draw a record- breaking demand for a public offering?

Liquidity, or the ability to buy and sell large blocks without effecting the share price, is perhaps the most important factor for institutional investors in choosing where to execute their trades. Looking at the Chinese stock universe from an American investor’s point of view, there are three markets that investors would consider: the NYSE, the NASDAQ and the Hong Kong Stock Exchange. Investing in Shanghai and Shenzen is still limited for foreigners and is further complicated by corporate accounting differences and information asymmetry.

I can’t help but quote from our February Newsletter, page 4 last paragraph. “Based on our latest field trip to China, Chinavestor.com expects The9 Ltd. (NCTY) to report a nice surprise. On the other hand, we did not see much activity of Shanda’s line of products and expect the battled game and home entertainment developer to slip.” End of quote. So when Shanda released earnings after the close on February 27th, disappointing news did not surprise us. China’s top online game operator said it swung to a quarterly loss and missed Wall Street revenue targets as online game sales weakened, sending its shares down 19 percent after hours.

I can’t help but quote from our February Newsletter, page 4 last paragraph. “Based on our latest field trip to China, Chinavestor.com expects The9 Ltd. (NCTY) to report a nice surprise. On the other hand, we did not see much activity of Shanda’s line of products and expect the battled game and home entertainment developer to slip.” End of quote.

Chinavestor “Stock of the month” ends up 5.2% in 2005 and is up 55.6% since inception, despite the fact that China’s booming economy failed to translate into stock-market gains. Defying rises in oil prices and interest rates, Asia stocks rose as domestic economies picked up and foreign funds sought cheap valuations. But the country level performances were far from uniform with indices in the greater China region at the bottom of the list.

Even though China’s economy continues to boom, to transform that into the green in our own pocket, is a different story. Investors have to remember that not economic growth but corporate earnings are driving stock prices. For the most part, of course. In addition to current earnings, seasoned analysts have to be able to differentiate between high– and low-quality earnings.

A fierce battle has been accelerating for a niche in China’s banking industry in the face of China’s preparation to completely open doors of its banking industry. Foreign banks have been staking out strategic alliances in China, hoping to be well-positioned for the eventual full opening of the industry just one year and three months ahead. Chinese welcome this competition and look at it as an opportunity to bolster their capital and improve management.