Chinese ADR trading was not much fun this week. While the S&P 500 dropped 3.4% for the week and is down -18.0% year-to-date (YTD), Chinese shares in Hong Kong are worse; The Hang Seng Index lost 3.3% the week but is down -31.7% YTD. No wonder, Chinese shares lifted in American exchanges suffered, too. The problem is not so much with Asia and with China in particular but with global capital flows. Investors are moving into safe havens abandoning positions in foreign markets- crumbling the value of those shares. China is no exception. And just to illustrate how bad things are, WaMu just went under while rumors that Wachovia is next makes my stomach sick.

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.

The9 Ltd is the leading online game operator and developer in China. Its main revenue drivers are affiliates operates licensed MMORPGs (massively multiplayer online role-play games) consisting World of Warcraft (WoW), Soul of Ultimate Nation (SUN), and Granado Espada (GE). During Q2 of FY2008, the company achieved excellent financial results due to the rising revenue from WoW and SUN. It also spent huge efforts in R&D and international affiliation. However, the results of those efforts are not foreseeable in the near future. The9’s limitation in self-developed game pipelines meant the company may suffer threats from its competitors such as Shanda and Netease. Furthermore, each game has its life cycle, The9’s over reliance on WoW may limit its future earning ability.

Oil is ruling the price of shares of Chinese companies listed in the U.S. today. Asia's largest refiner, China Petroleum and Chemical Corp. or Sinopec (SNP), is top gainer among Chinese ADRs while another oil industry giant, offshore specialist China National Offshore Oil Co. or CNOOC Ltd. (CEO) is top loser. What's the reason for such a different reaction to softening oil prices?

Fourth week of July was the week we've been long waiting for. Price of oil tumbled while Wall Street ended the week on a high note. Chinese companies listed on American exchanges performed well, too. As the following summary table of the Chinese ADRs listed on the NYSE and NASDAQ suggests, double digit gains were quite common - see column 5 market "change". In fact China's premium search engine company, Baidu.com (BIDU), rallied $40.86 since last Friday in just five trading days. The company announced 2008 Q2 earnings on July 23 after the close sending its shares remarkably higher the next day and breaking through the $300 resistance level.

Oil came back $2.16 to settle at $131.04 at the New York Mercantile Exchange sending investors to cash in previous gains. Bank of America reported better-than-expected losses following similar announcements from Citigroup, JP Morgan & Chase and Wells Fargo. Some take this as if the worst is over however earnings prospects are soft for many industry leaders such as Merck and Schering-Plough Corp. Despite weakness in the U.S. markets shares of Chinese companies listed in the U.S. ended the day on a high note. The overall China ADR Index (CAI) gained 14.38 points today with NASDAQ listed Chinese ADRs outperforming their NYSE counterparts.

Business Overview The9 Limited, incorporated in December 1999, is a leading online game operator in China. As of March 31, 2008, The9 City had close to 38.1 million registered users. The Company’s business is primarily focused on operating massively multiplayer online role-playing games (MMORPGs). Its major products include: - Affiliates operating licensed games, e.g. World of Warcraft (WoW), MU, Soul of The Ultimate Nation (SUN) and Granado Espada (GE). - The proprietary MMORPG, e.g. Joyful Journey West and Warriors of Fate Online. - Other exclusive licensed MMORPGs and advanced casual games, e.g. Hellgate: London, Ragnarok Online 2, Emil Chronicle Online, Huxley, FIFA Online 2, Audition 2, Field of Honor, Audition and Atlantica. - Other Products and services, include game operating support, website solutions and advertisement services, short message service (SMS), sales of its Pass9 system, and licensing of its games to third parties.

Based on the success of previous post (China ADR momentum stocks using 10-DMA and 30-DMA) when we highlighted stocks with outstanding momentum, we take a look at the week from a technical point of view. Notable Chinese ADRs are:

Financials led rally yesterday caught Chinese ADRs on fire, too. This week has been rewarding for China stock investors so far. As the following table displays, 38 Chinese ADRs are on the black vs. 8 on the red since last Friday. We are here to find stocks with outstanding momentum, a momentum that can carry on for the rest of the week. To accomplish this ambitious goal, we'll use simple technical indicators, 10-day, 30-day, 50-day , and 200-day moving averages or DMAs.

Shanda is the largest online game company in China and currently manages more than 20 online games. Shanda's products range from massively multiplayer online role-playing games (MMORPGs) and casual games to the family entertainment platform and online game platform. In 2008 Q1 net revenue rose by 9.2% QoQ and operating income increased 11.9% QoQ. MMORPGs remained the most profitable line and generated approximately 81% of its quarterly revenue. In addition, revenue from casual games grew by 36.5% QoQ, partially due to the Chinese New Year and student holiday. Under the Come-Stay-Play (CSP) revenue model, Shanda’s active paying accounts (APA) have increased by 19.2% to 6.03 million, but at a low conversion rate of 8% (to paying customers). Meanwhile average monthly revenue per active paying account (ARPU) of MMORPGs decreased 10.10%. Also, Shanda has decided to delay the launch of Tianxia in consideration of the recent catastrophe in Sichuan. A further concern about the business model Shanda will apply to the launch of Tianxia brings more uncertainties about the game’s profitability. Looking at competition, there are nine major game operators in China at present with ever increasing competition. And just how strong competition remins, let's just take a look at operating and net margins of four large game operators: Shanda Internactive (SNDA), The9 Ltd (NCTY), NetEase Inc (NTES) and Giant Interactive (GA).

High oil sent Wall Street lower today, the DJIA sinking 166.75 points to a two year low of 11,215.51 points. Shares of Chinese companies followed suit, the China ADR Index (CAI) losing 38.28 points to close at 701.88. The index is down 29.81% year-to-date (YTD), following negative Wall Street sentiment.

Wall Street saw better days then today. The DJIA is down over 300 points on high unemployment rate and record oil, approaching $150 a barrel. No wonder, shares of U.S. listed Chinese companies, or ADRs, follow suit measured by the broad China ADR Index or CAI. As the following table demonstrates, Chinese ADRs lost 3.41% today however there is a significant difference between NYSE and NASDAQ listed ADRs. While index heavy NYSE listed China stocks lost ground, measured by the China NYSE Index (CYI), NASDAQ listed Chinese ADRs hold ground thanks to a superb performance of NetEase (NTES), The9 and some solar companies.

There is not much direction to find in market sentiment lately. While February turned to be a comeback for Chinese shares listed in the Hong Kong Stock Exchange, the same stocks nosedived in the U.S. the last trading day of the month tracking major U.S. indices lower. As the chart on the page demonstrates, February was somewhat an improvement over January for stocks in Hong Kong measured by the blue chip Hang Seng Index. Stocks posted their best monthly gain since October in Hong Kong. At the same time, the selloff on February 29 in the U.S., a day the DJIA fell 315.79 points, left the stock market stuck in a rut with no clear indication to get any better. As the saying goes, it will get worse before it gets better… The U.S. listed stock universe, measured by the China ADR Index (CAI) has not been able to recover January losses and fell heavily on Friday along overall market sentiment.

Oil companies pushed the China ADR Index (CAI) up 15 points by noon, easing some of the pain PetroChina stockholders had to endure in 2008. PetroChina is trading at $156.28, up $4.87 or 3.22% at noon. Offshore specialist CNOOC Ltd. is rinding on the back of strong oil prices, too. The stock is up $7.78 or 4.91% at $166.33 by noon.

Chinese New Year celebrations closed down the Hong Kong and Shanghai Stock exchanges. This has no effect on the trading of Chinese stocks listed on U.S. exchanges. The China ADR Index (CAI) gained 21.14 points on Thursday, fueled by strong gains in the telecom sector, particularly CHL.

U.S. listed Chinese stocks came back strongly by the end of the day, NYSE names in particular. China Mobile (CHL), China's largest mobile operator came back especially strong by gaining $2.67 or 3.75 percent on Friday to finish at $77.39. Some of the institutional investors made use of the opportunity to pick up good quality stocks.

U.S. listed Chinese ADRs plunged on Thursday, suffering their worst two-day fall. As the following table shows, the "China ADR Index" (CAI) is down by -12.28% year-to-date (YTD), the "China NYSE Index" (CYI) is down by -11.95% YTD, and the "China NASDAQ Index" (CQI) is down by -21.0% YTD. These indices are market cap weighted and are set at 1,000 as of January 1, 2008.

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.

China computer game developers have been working for foreign game developers to make a living for a long time. However, several years of hard working and accumulated know-how eventually brought about a significant change. Numerous domestic developers have started to spring out based on self-innovation. In-house, self-developed games already account for 64.8% market share of the Chinese online game industry.

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!

The9 Ltd. (NASDAQ:NCTY) 2007 so far from an analyst point of view

Mr. Alan Greenspan is still a heavyweight. Some secondary remarks from the former FED Chairman, e.g. the U.S. is showing signs of recession, shook global equity markets overnight.

Earnings announcements are one of the most important moments for public companies. This is a bonanza for fundamental analysts who can x-ray the companies by examining these financial statements.

Investing in Chinese equities is a risky business. But one can ask: how risky? Is there a reliable risk measure geared specifically to investors who navigate in the Chinese stock universe? Our current Newsletter addresses this very important question and will shed light on stocks that are relatively safe and stocks that you should avoid.

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.

Based on the enthusiastic feedback we received from several of our clients, we attempt to use the same methodology to give a unique analysis of the NASDAQ listed Chinese stock universe. What makes our analysis very relevant is that seventeen liquid Chinese NASDAQ names reported quarterly earnings in the month of May, 2006.

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.

Chinese Companies have come a long way compared to even a year ago. It used to be hard to find relevant information about financials, quarterly reports submitted to the Exchanges on time were the exceptions.