Dear Fellow Investor,

I have an exciting update for you this week. More news has come out of China about the QDII program, and it should translate into big profits for investors like us who have large positions in China stocks.

As you may remember, last month China took an important step towards opening its financial markets with a new ruling called the Qualified Domestic Institutional Investors Program (or QDII for short). Under this program, domestic banks in China were allowed to start investing in foreign stocks. (In the past, banks had always been limited to purchasing foreign bonds.)

This was good news for Chinese investors because it meant they would finally be able to go to their banks and buy professionally managed funds containing foreign-listed companies.

But the QDII story is still unfolding. So far, the only major stock regulatory agency in the world that has signed an agreement to participate in the QDII program is Hong Kong. That means new QDII mutual funds will only be allowed to invest in Hong Kong-listed stocks. It's still uncertain as to whether or not other countries will sign up for the QDII. Until that happens, Chinese investors will still have limited access to international securities, and demand for investment alternatives will continue to build.

Profit Potential Keeps Building for QDII

But China took another step last week towards expanding its QDII program. Chinese securities regulators announced that they will now allow brokerage firms, fund managers and insurance companies (not just banks) to set up new mutual funds containing foreign shares.

At the moment, brokers, fund managers and insurance companies are limited to investing in Hong Kong stocks. But once the QDII program gets up and running, Chinese investors will have more fund options to choose from than just the ones offered by their banks.

It's going to take some time for banks, insurance companies and brokers to set up all of the back-end processes that will get these new funds up and running. In fact, we might not see QDII funds become available until year-end. Despite the wait, the psychological impact of this new policy will be enough to push stocks higher in the coming months.

I expect most institutions to create QDII funds containing well-known Mainland Chinese companies listed in Hong Kong. In my China Strategy service, we own six Chinese blue chips listed in Hong Kong that I believe will benefit big-time from QDII. Click here to get immediate access to these stocks—and the rest of my China Strategy portfolio.

Experts believe that once the QDII funds are set up, Chinese investors could buy as much as $100 billion in foreign assets. It's hard to believe, but this plan is actually designed to cool the Chinese markets and allow them to grow at a more reasonable pace. I don't think the new policy will have the intended effect, though, because there is already enough momentum in the Chinese market to hold Chinese investors' attention and keep them buying.

But banks, brokers and insurance companies will rush to create funds containing Hong Kong-listed shares. Why? Because stock valuations in Mainland China are sky-high right now. Hong Kong shares are currently trading more than 40% cheaper than their Shanghai-listed counterparts.

The upcoming availability of these Hong Kong mutual funds will boost our China Strategy portfolio because Hong Kong shares are linked directly to the ADRs that trade in New York. The building anticipation in China for funds that include Hong Kong-listed shares will drive up prices in New York as well. I believe we could see gains of as much as 20% in the coming six months! Click here to learn how you can get a piece of these QDII profits by joining us risk-free at China Strategy.

I'll continue to keep an eye on the developing QDII situation in China, and I'll be sure to let you know if I hear of more exciting news that could benefit investors.