There is not much to be happy for as far as Chinese stock trading goes today. Most of Chinese ADRs are giving up gains of previous days, such as Baidu.com after yesterday's $25 rally. As the following summary table shows, the China ADR index (CAI), a broad measure of the performance of Chinese ADRs, lost 23.48 points today and is down 25.8% year-to-date (YTD).

Large cap Chinese ADRs helped lifting the China ADR index (CAI) by 3.96 points. Still, the index lost a quarter of her value since the beginning of 2008 and jittery market conditions in the U.S. keep pressure on Chinese stocks. Couple of stock of interest: Aluminum corp. of China (ACH). The stock lost another -2.54% today on weak outlook. Today's performance came as no surprise to us, because events just unfolded as we predicted it on last Saturday. Here is the actual posting on the blog from last week

Shares of Chinese companies listed in the U.S. opened mixed to day after steep losses in last week. oil compnies are in focus again. China's offshore specialist, CNOOC Ltd. (CEO), is enjoying a ride on the back of strong oil prices. The stock is up $4.25 or 2.68% at the open. High oil prices hurt refiners. Asia's largest refiner, Sinopec (SNP) opened -0.23 percent lower while Petrochina (PTR), China's largest oil produceer with a significant refining on its own, opened -0.65 percent lower. China's decision to increase gasoline and diesel retail prices last week sent prices of refiners out the roof just to see them tumbling the next day. Overall SNP and PTR are trading sideways signalling as if the markets haven't figured out what to make out of the price increae combined with record oil prices yet. SNP is red while PTR is blue on the following chart.

Shares of Chinese ADRs followed suit tracking Wall Street lower this week. As the following table sums it all up, Chinese ADRs fell -4.2% this week, on average. Losers outnumbered stocks that closed higher for the week by 35 to 11.

Since early 2008, the frozen weather and snow storms in most of the Southern, Northwestern and Southwestern parts of China had resulted in power supply shortage, resulting in temporary complete stoppage of production of certain enterprises of the Company, thereby affecting our production operations. Price hikes of raw materials and fuels including energy also increased our production cost noticeably as compared with the same period last year which led to the decrease in profits.

Stock markets in the U.S. continued to slug: inflation concerns and high oil kept pressure on equity markets. Tuesday's economic data illustrated how the steep run-up in energy costs this year is affecting businesses. The Labor Department data showed that producer price index jumped 1.4 percent in May, the largest increase since last November. The DJIA shed 108.78 points. The S&P 500 index, a measure of the broader market, fell 9.21 points to 1,350.93, while the Nasdaq composite index fell 17.05, or 0.69 percent, to 2,457.73.

As resolved at the annual general meeting of the Company convened on 9 May 2008, it was approved to issue medium-term bonds with a total principal amount of not less than RMB3 billion and not more than RMB10 billion (the “Medium-term Bonds”). Pursuant to the approval granted by the National Association of Financial Market Institutional Investors on 22 May 2008, the Company may issue medium-term bonds with a total principal amount of up to RMB10 billion in the People’s Republic of China by various tranches effective on or before 20 May 2010.

From the annual income statement, Chalco achieved major improvement in revenue, increasing from 37,826.5 million RMB in 2005 to 76,180.4 million in 2007. This significant increase was mainly due to its several acquisitions during 2006 and increasing global commodity price. The acquisitions increased the production capacity dramatically. Total revenue had increased 17.5% from 2006 to 2007. However, as the continuing strong demand from Asian countries especially from China had been pushing the sales price up, the global oil price had increased as well to push up the cost of the industry. Specifically, Chalco’s cost of revenue went up from 43,930.7 million in 2006 to 57,197.5 million in 2007, representing a 30% jump. The significant increase in cost resulted in the net income had dropped 15.6% from 11,726.5 million to 9,899.6 million. In addition, gross profit margin dropping from 32.2% in 2006 to 24.9% in 2007. Also, operating profit margin and net profit margin decreased 7.68% and 5.09% respectively during the period from 2006 to 2007.

Price of Aluminium Corp. of China (NYSE:ACH) is down 18% year-to-date. This should not surprise many as the company reported weak 2007 Q4 and an even worse 2008 Q1 financial results. The company had to tap into short term borrowings of RMB 4.7bln in order to keep cash flow position stable. However this took a hit on liquidity measures. Underlying reason is overcapacity of alumina. For additional info, read the following story.

Chalco did not perform well in sales in the first quarter 2008. Its gross margin only reached 19% compared to yearly gross margin of 25% as of 31 December 2007. The declining trend had begun in the second-half of 2007 from which aluminum price in China declined and raw material costs increased. Company had been boosting output for the purpose of taking advantage of lower product price, but objectively suffered pressure on increased raw material price, power and transportation cost. By March 2008, quarterly net profit dropped to 1.3 billion yuan which is only 58% of the third quarterly net profit in 2007. Total cost of revenue, however, increased by 5% accompanied declining sales in the same period.

Despite surging commodity prices and a weak dollar shares of China's largest aluminum and alumina maker, Aluminium Corp. of China or CHALCO, are down 16.57% year-to-date (YTD). The question is: what's wrong with Chalco? Chinavestor reached out to different analysts to find some clues. Here is Chalco's first quarter performance from a fundamental analyst's point of view.

Subsequent to the confirmation from China Beijing Equity Exchange in relation to the Company’s successful bidding in the open tender process for the acquisition of the Target Equity Interests in six aluminum companies, the Acquisition Agreement was entered into by Aluminum Corporation of China (“Chinalco”) and China Nonferrous Metals Processing Technology Co., Ltd. (“China Nonferrous Metals”, both Chinalco and China Nonferrous Metals are referred to as the “Transferors”) and the Company (as “Transferee”) on 21 May 2008. China Nonferrous Metals is an indirect subsidiary of Chinalco and has, prior to the Acquisition Agreement, 13.01% equity interest in Henan Aluminum.

As approved at the 2008 EGM of Aluminum Corporation of China Limited (hereafter as the “Company”), the Company submitted to China Beijing Equity Exchange on 12 May 2008 the application to acquire 100% of the equity interests in Lanzhou Liancheng Longxing Aluminum Company Limited, 100% of the equity interests in Chinalco Southwest Aluminum Cold Rolling Company Limited, 84.02% of the equity interests in Chinalco Henan Aluminum Company Limited, 75% of the equity interests in Chinalco Ruimin Co., Ltd., 60% of the equity interests in Chinalco Southwest Aluminum Co., Ltd. and 56.86% of the equity interests in Huaxi Aluminum Company Limited from Aluminum Corporation of China and China Nonferrous Metals Processing Technology Co., Ltd. (hereafter as “Transferors”). The equity interests of the above companies are listed on China Beijing Equity Exchange for bidding at a consideration of RMB4,174.7589 million. On 13 May 2008, the Company received the confirmation from China Beijing Equity Exchange and became the ultimate transferee of the aforementioned equity interests.

On 9 May 2008, Chalco HongKong Limited, a subsidiary of the Company, entered into a Joint Venture Arrangement with Malaysia Mining Company (MMC) and Saudi Arabian Binladin Group (SBG) . The three parties had entered into a memorandum of understanding (“MOU”) on 3 October 2007 with the intention to set up a joint venture. On 24 November 2007 the parties entered into a Joint Venture Framework Agreement, and received a project permit issued by the Government of Saudi Arabia. The three parties also signed a Support and Undertaking MOU with the Investment Department of Saudi Arabia in respect of this project when the Joint Venture Arrangement was entered into.

On 17 March 2008, the Board of the Company approved the bidding by the Company in an open tender process on the China Beijing Equity Exchange to acquire certain equity interests in five aluminum fabrication plants and one primary aluminum production plant. Currently, the Board has submitted relevant proposals to the extraordinary general meeting to be convened on 9 May 2008 for consideration and approval and the relevant announcemen of the general meeting and circular were disclosed on 25 March 2008. Upon approval in the general meeting, the Company will participate in bidding on the China Beijing Equity Exchange.

HIGHLIGHTS • Consolidated revenue amounted to RMB76,180 million, an increase of 17.51% over 2006. • Consolidated profit attributable to the equity holders of the Company for the year was RMB10,245 million and earnings per share was RMB0.82. • Production of primary aluminum reached 2.8 million tonnes, an increase of 45.08% over 2006.

A near 20 percent correction in the Chinese stock universe in January marked the worst month for Hong Kong equities since Oct. 1997 as rising risks of a U.S. recession prompted a global equities sell-off. As the following chart suggests, the Hang Seng Index of Hong Kong lost 15 percent in January alone. U.S. listed Chinese stocks did not make it any better as the broad China ADR Index or CAI lost 14.7 percent, too. U.S. stocks held up better, sending the DJIA down 4.9 percent for the month to 12,650. To make matters worse, ratings agency Standard & Poor's said it cut or may cut its rating on up to $534 billion of subprime bonds. Where is the bottom? Where do Chinese ADRs go from here?

In case you don't have direct access to news from the Hong Kong Stock Exchange but want to know what's going on with Chalco (ACH) regarding assets that its parent, Chinalco is offering, here is a press release.

Chinese stocks made a modest comeback by noon on Friday. The China ADR index, measuring cap weighted performance of 67 Chinese stocks, is up 0.35 percent. NASDAQ names are up almost one percent. NYSE names are laggards.

The problem is that this upswing is not likely to cause any effect on current NYSE and NASDAQ listed prices of Chinese shares, simply because this bounce back was caused by Wall Street and not the other way around. Basically Hong Kong listed prices just reacted to yesterday's trading in the U.S. and as such will have negligible effect on today trading.

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.

I have a strong feeling that ADRs will do great today. Reasons: China ADRs are oversold, Hong Kong came back and index futures point to a higher open. Watch out for large caps like LFC, ACH and SNP today.

Stocks that are oversold big time and thus are ready for comeack today are ACH, HNP, CEA and YZC. Plus shares of Chinese fixed-line operators China Telecom Corp. and China Netcom Group Corp. gained for a second session in Hong Kong Tuesday on expectations they could soon receive third-generation cellular licenses. So that rally is not technical but fundamental in nature so don't try to find it on this screen. Still, CHA and CN are about to cheer investors to day, too.

China stocks post biggest weekly loss in a decade: China's main stock index closed Friday with a weekly loss of 8 percent, its biggest weekly drop since May 1997. Chinese ADR portfolio was just as bad with no clear indication where the bottom is. Look up from the table below how your Chinese stocks did.

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.

What did I predict? If U.S. falls Chinese small caps will tumble. Here it is. Next week Monday and Tuesday will be even worse. Recovery on Wed-Friday. Watch!

I had a chance to make a presentation about the tremedous opportunity Chinese stocks or ADRs represents to U.S. investors in front of the Oxford Investment Club.

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...

Sometimes we get it right: we predicted yesterday that today will be an even BETTER day. We have no reason to doubt it at 9:00 A.M. before the bell. We will see.

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.

Before the bell: strong Hong Kong and Shanghai trading suggests another bullish day for China ADRs. Look for YZC, ACH, PTR, CEO, CHL, BIDU

Technical analysis of China ADRs. Stocks mentioned: NTES, BIDU, CHL, SOHU, ACH, CEA, YZC, SINA

Aluminum Corp. of China Ltd. (2600.HK: Quote, Profile, Research)(ACH: Quote, Profile, Research)(601600.SS: Quote, Profile, Research) : possiblity of oversupply. Tables, food for thought

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