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.

At Chinavestor we have always argued that investors have to understand the fundamental differences between NYSE and NASDAQ listed Chinese companies. NASDAQ listings offer higher retunrn in general but at a price of higher risk.

I just wanted to share a couple of factors to consider before making a prediction for the upcoming year in 2008. Overall I'm bullish in China but I don't think the spectacular gains in the last three years will be repeated. Here is why.

Chinavestor is proud to announce the launching of three China ADR indices. The "China ADR Index" (CAI), the "China NYSE Index" (CYI), and the "China NASDAQ Index" (CQI). These indices are market cap weighted and are set at 1,000 as of January 1, 2008.

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.

I understand possible industry revamp my erode CHL market share - so CHL was not the winner today. But CHU did well both in Hong Kong Stock Exchange and Shanghai Stock Exchange, suggesting a stellar perfrmace for today on the NYSE.

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.

Three major reason to support my argument: No change in China GDP growth - over 11% in 2007. Plus U.S. subprime related bad inventory will be out by end of 2008. And finally, Chinese companies will report strong earnings, pleasantly surprising the world how resilient they are to U.S. slow down.