Dear Fellow Investor,
Over 2 billion people tuned in to the Beijing Olympic Opening Ceremony last Friday, making it the most-watched live event in television history. And the world definitely wasn't disappointed as the Chinese put on quite a show.
Seven years of planning and $300 million produced an event full of fireworks' displays, 15,000 performers and 11,000 athletes representing 204 countries. The incredible show blended Chinese history and culture and introduced a now modern China.
The Olympic Opening Ceremony truly set the spotlight on China and showed that the country is ready to take its place among the world's powerhouses. If you've been reading my Inside China Dispatch issues each week, then you know it's been a long journey and that there's still more advancements and changes in the years to come.
But the Summer Olympics have given China the opportunity to show the world the steps forward that it has taken as of late. And the way the world views China is already changing. Just last week at the San Francisco Money Show, I asked attendees who though that China could replace the U.S. as the foremost economic power in the 21st century. The amount of hands in the air was actually surprising.
Considering China's current success at modernizing its cities, lifting its people out of poverty and cleaning up its air pollution problems, I shouldn't have been surprised that the rest of the world is finally seeing the economic progress that China has made over the years.
However, I think China's current success is just the beginning. We're going to continue to see this country prosper in the years to come, especially in the years immediately following the Beijing Olympics.
And one of the best ways for us to take advantage of this prosperity is to invest in well-run, fundamentally sound Chinese companies. Some of my favorite Chinese companies have actually been doing fairly well the past two months, despite the weakness in China's stock market. For example, China's leading education services company is up 12% in the past two months!
To learn more about how you can profit from China's growing prosperity, join China Strategy today.
What's Weakening the Chinese Stock Market?
That can be summed up with one word… Inflation.
The Chinese stock market has been weak recently due to a higher-than-expected Producer Price Index (PPI). In July, the Chinese PPI increased 10% year over year. Of course, after this headline, many investors felt that China's high PPI -- which is mostly composed of raw materials like oil and steel -- meant that inflation was out of control in the country.
But, also for July, China's Consumer Price Index (CPI) decreased for the third month straight -- clocking in with an increase of only 6.3%. So is inflation really increasing in China right now?
I don't think so. China's record-high PPI in July was due to higher domestic oil and steel prices. After a strong commodities run up this past Spring, the Chinese government hiked raw material prices. That's what caused China's PPI to sit at such high levels in July.
Though with most major commodities selling off as of late -- crude oil prices have fallen 22% since their mid-July highs -- the Chinese government is going to be pressured to lower prices on some items. So it's likely that we'll see China's PPI follow the same path as its CPI and move lower.
Still the record-high PPI numbers still caused investors to worry, and that's why the Chinese stock markets have sold off recently. And I think this was a big mistake on their part. But it's creating some great buying opportunities for investors who are focused long-term picture and aren't easily distracted by short-term gyrations.
But what should you be buying? Right now, two of my top picks include a Chinese online travel company and China's leading medical device company. This travel company actually reported impressive earnings this week, and popped nearly 20% today! And healthcare stocks have been showing strength the past month, and this medical devices company should continue to benefit -- it's up 142% for China Strategy subscribers so far.
To learn more about my top Chinese picks right now, join China Strategy today.
Robert Hsu
