Dear Fellow Investor,

It was another extreme day for the markets, and I'm currently navigating my China Strategy members through today's volatility. As you have probably heard, the global markets sold off sharply on continued subprime credit problems and liquidity panic here in the U.S. As I write this, the S&P 500 is down 11% from its highs less than a month ago, and the more volatile Asian markets have lost over 10% during the past three sessions alone.

Let's take a moment to talk about what actually happened today. This morning credit ratings of Countrywide and other big U.S. mortgage lenders were downgraded after Countrywide said it would borrow $11.5 billion from its credit line in order to fund new loans. The market reacted so strongly to the news because when companies extend credit, it raises the risk levels for investors. For example, the more debt a company has, the less likely it is that investors will get their money back should the company fall on hard times.

I believe the credit and liquidity crises are legitimate concerns. But these are U.S. problems that can be countered by central bank action. In fact, central banks around the world have already started to inject liquidity into the system during the past week. Earnings fundamentals, especially from Asia, continue to be very strong. Nevertheless, there is a real possibility that many U.S.-based lenders may go out of business, and it's important to respect the heightened level of risk.

Similar types of market problems took place during the summer of 1998, with the Russian debt crisis and overleveraged credit hedge funds. Stock markets around the world sold off sharply at the end of August and the beginning of October. Ultimately the Fed stepped in and injected enough liquidity in the system, and the stock market took off in 1999.

My feeling is that we are close to making an intermediate-term bottom. This is the third consecutive big down day in a row, and sell-offs of this intensity tend not to last longer than three days.

I'm watching the action very closely, and if I see any indicators that investors should take action, I'll send my China Strategy members a Flash Alert right away. If you would like to receive up-to-the-minute Flash Alerts and in-depth advice on investing in China, click here to join us at China Strategy right away.

Profiting From Perspective

Sometimes, in the heat of the moment, it's hard to stay focused on the big picture, which is China's historic growth and its increasingly entrepreneurial society. Given the current subprime credit woes and the resulting sell-off, it's especially difficult to think long-term. But as investors, it's important that we look forward and concentrate on top-notch growth opportunities.

I'd like to tell you about one such opportunity today. This company is profiting from China's ultra-competitive, examination-driven education system in China. It also has excellent fundamentals—after the last major sell-off that we saw back in late February/early March, the stock only took two weeks to recover and has been setting record highs ever since. I expect it to continue its strong performance in the coming months as it capitalizes on a growing segment of the Chinese economy.

In addition to paying for school tuition and books, most Chinese parents enroll their children in pricey extracurricular tutoring, which is an area that this company positively dominates.

It was founded almost 15 years ago by a man named Michael, who was a graduate of Peking University, which is China's equivalent of Harvard. He went on to teach English at his prestigious alma mater and made $12 a month, which was considered a good salary.

But Michael wanted more, so he decided to move to the U.S. However, his student visa application was rejected. Out of this setback came one of China's most interesting companies.

Michael started a test preparation business to help other Chinese students gain admission into U.S. graduate schools and avoid the rejection he endured. From its first class of only 30 students, Michael's company has grown over the past 13 years to become China's largest private education provider. It has a network of 25 schools and more than 110 learning centers in 24 cities, as well as an online network with two million registered users.

The company has helped hundreds of thousands of Chinese students gain admission to U.S. universities by providing prep courses on the TOEFL (which measures English proficiency) and GRE standardized tests, which are required for foreign students to be accepted by U.S. universities.

This is a huge and growing market. During the past decade, China sent more students abroad than any other nation, and Chinese students now make up 14% of all foreign students worldwide. And remember, every single one of them must pass the TOEFL test. That gives you an idea of how popular—and essential—Michael's preparatory classes are.

You've heard me say it before: The people are the real drivers of China's economic miracle. People like Michael. I wouldn't want it any other way, and I can think of no better reason to be so excited about the opportunities we have to build our wealth right along with them. I invite you to join us today. (Click here to learn more.)