Dear Fellow Investor,

Did you hear the big financial news from China over the weekend?

I bet you didn't—nobody on Wall Street covered it. But I took notice, and I even sent my China Strategy subscribers a Flash Alert on Monday telling them exactly what to do with their holdings. This news is big, and I believe investors have a right to know about it. Today I'd like to talk about the situation because it affects the way people like us should approach investing in China from now on.

Last weekend, Chinese Premier Wen Jia-bao unexpectedly reversed a landmark decision that affects millions of Chinese investors and the global markets. The Premier announced that Beijing will suspend, indefinitely, the program that allows Mainland Chinese to invest directly in Hong Kong stocks. He only said that government officials need to do more research and planning before allowing the initiative to continue.

This announcement puts an end to a program that China started a few months ago. If you've been with us at Inside China Dispatch for a while, you may remember that back in August, China's government decided to launch a pilot program that allowed some Chinese investors to start purchasing Hong Kong-listed shares. The program immediately caused market excitement, and as a result, Hong Kong's Hang Seng Index quickly surged 5.9%—its biggest gain in almost nine years.

I told you about this program because I knew that it would provide a boost to U.S. ADRs—specifically the companies that we focus on. Lots of Mainland investors scrambled to buy well-known Chinese companies listed in Hong Kong, many of which were already part of my China Strategy portfolio. Our New York Stock Exchange-listed ADRs in these companies are directly backed by shares in Hong Kong, so as Mainland investors bought these shares, our ADRs also went up—by a lot.

Safety First

How did you fare from yesterday's 360-point slide in the Dow Jones Industrial Average? I hope you didn't lose too much in the market's freefall. The China Strategy portfolio not only held its ground during the decline, it actually avoided losses by sticking to a solid sell strategy. In fact, less then 48 hours before the market took a dip, I alerted my subscribers to a change in the wind. I told them to sell select stocks and they not only locked in gains of up to 288%, they avoided losses caused by market panic. I can do the same for you, but you've got to take the first step by giving China Strategy a try today. Trust me, with a risk-free, money-back guaranteed subscription you have nothing to lose and so much to gain!

Since Mid-August when the pilot program was first launched, many of our China Strategy stocks have run up by 50% or more. Click here to learn how you can start earning these kinds of double-digit gains in your own portfolio. But now that the Chinese Premier has announced the end of the program, the upside potential for some stocks has decreased.

Cash Flow Continues from Institutional Investing

The good news is that shares of most well-run Chinese companies are not at risk—they should continue to experience upward momentum because of China's astonishing economic growth and increasing pressure for currency appreciation.

Also, the cancellation of the pilot program won't affect China's QDII program—the Qualified Domestic Institutional Investors Program. The QDII, which was started back in May, allowed Chinese banks, brokerage firms, fund managers and insurance companies to set up new mutual funds containing foreign stocks. On the institutional front, China's QDII equity fund program will continue.

So basically, last weekend's announcement reveals that Beijing prefers to let money flow through institutions into Hong Kong instead of allowing individual investors to do it themselves. Chinese money will still reach Hong Kong, but it will do so through managed mutual funds instead of direct investing by individuals.

What Does this Mean for Us?

I believe the best course of action is for investors to take profits in stocks that could be hurt by the discontinuation of the pilot program. Even though Mainland Chinese money will continue flowing into Hong Kong through institutional investment, we need to be cautious for three reasons. First, China stocks have run up a lot lately. Secondly, the Premier's announcement last weekend has dampened the mood of Chinese investors. And lastly, the Chinese market is due for a well-deserved rest, which will be healthy for the bull market over the long run.

So what kinds of stocks should we take profits in? That's a good question. The end of the pilot program will mostly impact well-known Mainland Chinese companies listed in Hong Kong. There's no specific industry or type of company that will feel the pinch. That's why it's important for investors to know exactly which stocks could be affected. Interested in learning more? Join us at China Strategy today and find out which winners will continue climbing and which have passed their peaks.

One of the stocks in our China Strategy portfolio could experience a plateau in its momentum due to the program cancellation, so in the Flash Alert that I sent out on Monday, I told subscribers to sell. The company—a metals monopoly—was our biggest gainer ever, and we sold our position for impressive profits of 288%! That's not bad for a stock that we owned for only 14 months.

Staying on Top of the Situation

The biggest issue that this weekend's announcement brought to light is the fact that the media didn't discuss it. When an economic policy change of this magnitude happens, it's crucial for investors to stay informed.

I give my China Strategy subscribers all of the latest information on breaking news in China. In fact, I just arrived in China earlier today to do two weeks of intensive boots-on-the-ground research. While I'm here, I plan to dig beneath the surface to see if I can find out more about this new policy reversal. I'm also going to visit a number of the companies I'm currently recommending as well as investigate new opportunities. That's one advantage I can give you that you won't find anywhere else. Click here now to get my most recent analysis of what's happening in China.

In order to invest wisely in China's incredible economic growth, you need to know what's really going on there. A little bit of knowledge could save you from making big mistakes in your personal portfolio. I make it my mission to bring investors like you the truth about China while helping you avoid profit-busting pitfalls. Join me today and experience firsthand all of the opportunities that China has to offer.

Until next week,

Robert Hsu
Editor, China Strategy

P.S.: With the U.S. dollar in a downward spiral, smart investors are turning their attention to stronger currencies. The Chinese yuan is under a great deal of pressure to appreciate in value, and I believe we could see an appreciation of more than the planned rate of 5% per year. Many of our China Strategy companies have yuan-denominated assets, and their shares should climb in lock-step with the yuan's value. Click here to learn how you can get in on this growing currency opportunity. Remember, it's important to diversify as the dollar keeps sinking, so get ready to step up your China buying!