Dear Fellow Investor,

"It's like going from the Jetson's to the Flintstones."

That's how Thomas Friedman, the best-selling author of The World Is Flat, described his recent experience of returning to New York City after visiting Hong Kong.

What's interesting is that I felt pretty much the same way after returning to Los Angeles from my two-week trip to Shanghai, Hong Kong and Taipei.

In contrast to many U.S. and European cities that seem eerily past their prime, Shanghai and Hong Kong are China's rising powers.

In fact, because there are so many progressive aspects to China's largest cities, people from around the world are moving there to prosper and make fortunes.

Take Shanghai, for example. This city is teeming with possibilities. People have the ability to reinvent and transform themselves: In the past five years, thousands of Chinese peasants have turned into millionaires in Shanghai.

In addition, adventurous unemployed American youths have transformed into hip-hop artists, yoga teachers, DJs and other interesting professionals. Also, keep in mind that both Shanghai and Hong Kong are full of tasty food, exciting nightlife, and the ever-present bargains.

It's this potential and opportunity for success in Shanghai and Hong Kong that draws—people from around the world—including me—to these cities. As a result, Shanghai and Hong Kong are full of energy, excitement, and opportunities. And I think the spending power of the Chuppies will continue to make Shanghai an exciting and fun city full of opportunities in 2009.

Stark Contrast to Japan & Germany

The excitement and youthful energy in Shanghai and Hong Kong, as a whole, stand in stark contrast to Japan and Germany.

I observed both of these countries first hand in 2008 as well and found it interesting how different these two economic powers compared to China.

While both Japan and Germany are generally cleaner, better organized, and much quieter than China, both are fading into the background as China takes center stage.

As you know, China has fared the global financial and economic crisis relatively unscathed in comparison to other economic powerhouses in the world. In fact, Japan and Germany have been hit hard by these crises.

One of the reasons that these two countries are struggling right now is because both are suffering from an aging population and some of the lowest birthrates in the world.

That means more people are retiring than are entering the workforce. So I think it is unlikely for these two economies to improve any time soon, especially considering that I expect both economies to slowdown even more in 2009.

On the other hand, China's population contains more than 900 million people under the age of 45.

That means the Chinese workforce if filled with people able to help the country's economic growth stay robust.

Now, I'm sure that many of you are thinking that this large population of young people can't last due to China's one-child policy. The reality is that this policy will eventually hurt the country's demographic dividend, but it will not begin to happen until 2020 at the earliest.

As you can see, compared to other economic powerhouses in the world, China is finding itself in the spotlight while others are falling into the shadows.

And this is a trend I expect to continue in 2009, as the Chinese government continues to focus its efforts on stimulating economic growth, creating jobs and supporting the country's stock markets.

All of this makes China one of the only viable investment opportunities this year.

Is your portfolio aligned to take advantage of China's economic strength in 2009? If not, it's not too late to get prepared now.

So if China is so full of potential, what is in store for the country in 2009?

Well, there's no hiding the fact that 2009 is going to be another tough year for the global economy. And China will likely feel the affects of the global economic slowdown as well.

But what's important to note is that China will be the only growing major economy in the world next year—the rest of the world will likely slump into recession.

China has been the world's fastest-growing major economy since economic reform started 30 years ago. As the U.S. and European economies come under pressure as a result of their deteriorating financial institutions, China will be able to increase its lead over other major economies next year because the Chinese financial system is largely unscathed.

So the Chinese economy will likely chug along at a 6% to 7% GDP rate during the first six months of 2009. And then, when the Chinese economy really turns around in the last six months of the year, I expect that we'll the country post an even higher GDP growth rate.

In addition to the continuing strength of the Chinese economy, the Chinese government's support and economic policies will also help support China's stock markets this year. We also need to consider that a lot of the negative news has already been priced into current Chinese stock prices.

All of these things combined are already pushing the Chinese stock markets higher. After finding a bottom in late October, the Hong Kong Hang Seng index has gained 41%.

And since stock markets tend to turnaround six months before the economy, Chinese stocks markets will continue to trend higher in 2009 and these gains will be a drop in the bucket to what we'll see this year!

As I already discussed, China is full of potential, growth and possibilities in 2009.

Sincerely,

Robert Hsu
Editor, China Strategy