Take Advantage of Strong Chinese Currency

Robert Hsu, May 10, 2007

Dear Fellow Investor,

It's been quite a week for the Chinese stock market. After taking a seven-day trading break for the May Day holiday (which we talked about in last week's Dispatch), the market came back stronger than ever. In fact, yesterday the Shanghai Composite Index topped 4,000 points for the first time.

This is an impressive feat because just two years ago, the Shanghai market was in bad shape, trading around 1,200 points. And two short months ago -- in March -- the index hit 3,000. With the Shanghai Composite Index trading up above 4,000 in such a short amount of time, lots of people are talking about a China stock bubble.

As I told you last week, there's no reason for us to be concerned. We're in the very early stages of this leg up, and there's still years of upside potential ahead for Chinese stocks. I believe what we're seeing in China right now represents the biggest wealth-building opportunity of our lifetimes, and my China Strategy readers are well-positioned to take advantage of this with some of the best China plays around.

In fact, the stocks in my China Strategy portfolio have done very well since March 5, when they bottomed out after the February 27 sell-off. We've enjoyed impressive gains in the last two months from stocks such as

Our monopolistic metals refiner and producer (up 42%)
Our educational services company (up 37%)
Our popular online gaming company (up 34%)
Our fast-growing insurance provider (up 28%)

And that's just the beginning! We'll see even bigger gains in the coming months as the Shanghai market continues its historic run. Click here now to learn how you can join us in building wealth from the Chinese market's incredible run-up.

One of the China Strategy holdings that I expect to benefit the most from the Mainland market's historic run is a new fund that I just recommended to subscribers. I'm very excited about his fund because it presents us with a unique opportunity.

You see, many investors have asked me how we can profit from the scorching-hot Chinese market, which is closed to foreign investors. Until recently, there weren't any investments available to us that directly profited from the exchanges in Mainland China.

But in September, a new fund was created that invests directly in A-shares of Chinese companies listed on the Shanghai and Shenzhen Stock Exchanges.

The fact that the fund invests directly in Chinese shares makes it risky. Companies listed in China have very high valuations. Overall, companies listed on the Shanghai exchange are trading at an average P/E ratio of 40. That means this fund -- which mimics the Shanghai market -- contains many highly valued companies.

But the potential rewards the fund offers are huge for investors who are willing to take on the risk. Chinese shares will continue to climb for the foreseeable future as investors in China rush to open brokerage accounts. As we talked about last week, the growth in new brokerage accounts in China has been positively explosive.

During the entire year of 2006, 3 million new retail brokerage accounts were established in China. But during the first quarter of this year alone, 5 million new accounts were established. And during the week ending as recently as April 27, 1.48 million new trading accounts were opened. That represents the biggest weekly increase in new accounts since China started publishing such numbers in 2005!

And new accounts will continue to be opened. The Chinese are big savers by nature, and they're sitting on a lot of money. Real estate is not a viable investment option for them right now because the Chinese government is currently trying to prevent real estate prices from overheating. The Chinese are well aware that the best place to put their money is the stock market.

And when they do, our fund will directly benefit. It has large and active positions in China's most important sectors: commercial banks (18.2%), steel (12.9%), machinery (12.8%) and oil (10.1%). The fund also invests in the growing areas of transportation infrastructure (such as road and rail), airlines and utilities.

In addition to investing in some of the best sectors in China, this fund will allow us to profit from China's double-digit economic growth and the strong yuan in one single investment. One of the benefits of investing in a fund that's directly tied to the Chinese markets is that we can take advantage of the strong Chinese currency. The fund is invested in companies with assets and earnings denominated in the yuan, and I believe the yuan will continue its steady appreciation of 3%–5% a year versus the U.S. dollar.

To top things off, the fund has experienced a lot of positive momentum, which I don't see slowing anytime soon. Since its inception at the end of September, it's up 76%. The fund also recovered quickly from February's sell-off and is up 38% from its lows.

You can be among the first to learn about this exciting new fund by joining us at China Strategy. To get my detailed buy advice on the fund -- as well as access to my complete China Strategy portfolio -- click here now.