China: Boom and Biotech

04/07/2006 12:00 am EST

Focus:

Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

"I am writing from China, having visited Beijing, Xi'an, Chongking, and Shanghai," notes Mark Skousen, editor of Forecasts & Strategies. Here, he offers his observations on the region along with a very excitingalbeit speculativeChinese biotech story.

"My first impression of China is a dramatic change from the last time I visited Beijing two months before the Tiananmen Square protests in 1989. Back then the streets were filled with bicycles and there were few skyscrapers. That's all changed. Today the streets are filled with cars, not bicycles, and my crane test indicates that the city is booming, partly in preparation for the Olympics in 2008 and partly because the economy is growing rapidly, at 8% or more. All in all, China is booming and we continue to profit with our Asian stocks."

"I continue to recommend all our Asian positions, including Morgan Stanley Asia Pacific Fund (APF NYSE), which invests in Japan and other Asian stocks, which rose last month, and is still selling at a comfortable 11.2% discount to net asset value ($18.48). It’s an excellent diversified way to invest in Asia. Hong Kong Shanghai Bank (HBC NYSE), with a 4% yield), is the largest Asian bank in the world and a great way to profit from the China boom. We are also recommending the China Fund (CHN NYSE). I see China enjoying above-average growth for the next ten years. Wal-Mart just announced it will hire 150,000 Chinese. The premium on the China Fund has almost disappeared, making it an excellent buy right now.

"I'd like to add a new remarkable new stock play, a great way to profit from biotech and the China boom. I met with a top official of China Medical Technology (CMED NASDAQ), an exciting new biotech company that has created a successful, non-invasive system for the treatment of nature's deadliest disease, cancer. Now I know you've heard a million cancer stories before, but this treatment doesn't cause skin burns, hemorrhaging, or even discomfort. It's so painless that treatment doesn't even require anesthesia!

"Moreover, more than 20,000 patients have already been treated using this cutting-edge technology, and the success rate tops 80%. Tens of thousands of more patients are awaiting treatment now. The treatment is so successful that General Electric has taken a 15% stake in the company. With profit margins exceeding 50%, the company is growing rapidly.

"Profits were up 42% in the quarter ending Dec. 31, with earnings exceeding $7 million on sales of $68 million. For a biotech company, the stock is cheap, selling at 28 times earnings. The market has recently absorbed a big secondary offering from the company. I think this stock could be a 10-bagger if all works out well with its non-invasive anti-cancer program. Let's join GE and buy China Medical."

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