Dear Fellow Investor,

No one is entirely immune to the uncertainties plaguing the global economy. Here in the United States, major indexes remain volatile, and I believe we'll continue to see the S&P bounce around in a narrow 10% range over the next few months.

The slowing U.S. economy sent a ripple through stock markets across Asia and Europe, Monday, as the dollar fell to a three year nadir against the yen (¥102.72) and to $1.52 against the euro. Combine a weak dollar with the sub-prime mortgage crisis and the high price of oil, the importance of an investment strategy that includes emerging markets becomes clear. That's exactly why we focus on China and the opportunities there. In almost every dimension—from investors to producers to consumers of energy and commodities—China is primed as the economic behemoth of the 21st-century. As living standards rise and the use of technology broadens, it should come as no surprise that the Chinese market will expand upward and out. Although I predict that Chinese GDP growth for 2008 will moderate from its 11% high in 2007 to 9%–10%, I still expect China's market to be one of the fastest growing in the emerging world. 

As I've been telling you in our weekly Dispatches, the valuation of Chinese stocks is coming down to more reasonable levels. With high-quality China stocks now selling at lower P/E ratios, I believe it's time to get more aggressive with our buy strategy and add a new company to our portfolio.

Although commodities seem to be the only reliable trend during this volatile period (with gold valued close to $1,000 dollars an ounce), I'm once again encouraging investors to claim a stake in Baidu (NASDAQ: BIDU), which is currently outperforming the market consensus. I've had my eye on this company for a long time now, but it's only been recently that I've seen it trade at a fair price.

Baidu: The Google of China?

Baidu's profile is so high that investors often ask me about the company's prospects. In truth, I used to avoid this stock, especially after its over-zealous initial public offering (IPO) a couple of years ago—it shot up more than 250% to $95.94 a share halfway through the first trading day. I didn't think Baidu was growing fast enough to justify its sky-high valuation and thus kept my China Strategy subscribers away. For a complete list of stocks I'm currently recommending in China Strategy, including commentary on stocks not to buy, join today.

Profit from Hong Kong

While shares in the United States are slipping, stocks in Hong Kong are climbing. What's behind this rally in the East? Last week, Hong Kong announced a cut in its income tax. And capital gains from real estate and stock trading are tax-free. With these favorable tax policies, I expect Hong Kong to attract international talent and capital. That's why it's important for investors to have a Hong Kong strategy. Do you know how to profit from this Chinese city's economy? Join China Strategy at a discounted rate today, and I'll give you instant access to my Hong Kong play. Hong Kong's economy is projected to grow at least 5% in 2008. Don't miss out on this opportunity!

Those of you who subscribe to my weekly trading service Asia Edge (China Strategy's sister publication) may remember that I recommended Baidu late last summer as a good buy below $210. The stock soared to $345, and we reaped a 68% profit in just three months. At the time, I didn't feel the company was appropriate for our China Strategy portfolio because it was rising too rapidly, which made it a risky long-term investment. But as with many China stocks in the past few years, the initial exuberance has turned into stable growth and the stock has moved into a safer trading range. Baidu has proven its dominance in China's Internet industry, and I believe that this is an opportune time to grab shares for the long haul and at a discounted price.

Before we get to the company's competitive advantages, I'd like to share some insight into China's Internet industry and its untapped growth potential for investors.

China's Growing Internet Industry

Fueled by strong video, e-commerce and online gaming demand, and a steady decline in the month-to-month prices for high-speed services, China achieved a record 60.6 million broadband connections in December 2007, rounding off its total population of Internet users to 210 million. Subsequently, China has become the most dynamic Internet market in the world and the second-largest Internet-using country after the United States.

Another factor contributing to China's demand for Internet access is this summer's Beijing Olympics. The number of broadband subscribers will undoubtedly increase as populations in China turn to the Internet to view and follow coverage of the different sporting events.

China's broadband growth will certainly increase the sales of a diverse range of companies, but I believe Baidu is the most well-positioned to absorb and gain momentum from the market's dynamism. As China's most popular search engine, Baidu will continue to boost and use its revenue to expand and diversify its product lines to attract more and more users. To buttress this inference, the company's dividend policy is essentially to avoid paying dividends on ordinary shares, which is a sign that the company is looking to retain its future earnings and available funds to expand business operations throughout the market.

Competitive Advantage

It's important to remember Baidu's competitive advantage in China over other search engines like Google and Yahoo: It reaches audiences in a native package. The company's Chinese heritage is very important to its business model. Since the beginning, Baidu has boasted that its knowledge of China and the Chinese language would give it a natural advantage over foreign search engines.

For more insight into my interpretation of Baidu's competitive advantages, subscribe to my China Strategy investment newsletter.Plus, as a valued Inside China Dispatch reader, I'm offering you my best deal yet when you sign up today. Click here to see my limited-time-only discount. You must act quickly—I can’t offer these prices for long.

P.S. Fears about an economic slowdown in China after the Beijing Olympics is capturing the imaginations of legions of uninformed investors. If you've been with me for any length of time, you know that I don't see the Olympics as the end of China's growth, but a new beginning. China will not collapse after the games but should charge ahead and take smart investors along for the ride. So, don't miss out on the opportunity to buy key stocks that Wall Street is ignoring now, but will clamor for after the Beijing Olympics are yesterday's news. Get my complete buy list today. Join China Strategy at a special discount. But you must hurry—this offer is for a limited time only!