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Riding the Chinese Dragon

Here are three reasons why we think China Life will generate big profits for Global Bull Market Alert subscribers between now and the end of the year.

First, with a market share of 49.3%, China Life is the dominant player in China’s underdeveloped life insurance market. "Underdeveloped" is the key word here. Insurance premiums per capita in China are $27.30, while the global average for premiums per capita stand at $292.20. That spells enormous growth potential.

Secondly, China Life has developed the pleasant habit of surprising on the upside. For the six months ended June 30, 2006, revenue grew an impressive 47% to $9.1 billion. Net profits leaped ahead even more dramatically to $1.13 billion, a 72% jump compared to the same period a year ago. These results were 23% above Standard & Poor’s original forecast. China Life also is becoming more efficient at its business. Tight expense control saw net margins climb to 12.4%, up from 10.8% during first half 2005.

Third, thanks to the government’s recent easing of restrictions on the types of investments that Chinese insurers are allowed to make, China Life’s investment yield rose to 4.24% (4.54% if you exclude cash), compared with a 3.9% return in 2005. That’s well ahead of its maximum guaranteed payout rate of 2.5% on new policies.

Finally, China Life is working hard to establish a higher profile among investors, both domestic and foreign. It plans to list its Class A shares in Shanghai later this year and domestic pension funds will respond by making China Life a core holding. And China Life recently has established a working group to attract strategic investors. Global investors go gaga over such news, and any announcement of such a link up would send the stock soaring.

Exclusive Geopolitics and Rising Volatility Take Hold of Market Landscape

With a PEG ratio (Price Earnings to Growth) of only 0.83, China Life still is cheap relative to its future growth. So buy China Life (LFC) at market today. For potentially bigger gains, play the January $80 call options (LFCAP.X).

PORTFOLIO UPDATE

To make room for China Life, sell your remaining shares of Cognizant Technologies (CTSH) to book a profit of close to 15.4% on the stock. We already earned 58% on Cognizant options.

Our initial stop price for China Life is $73.25. In addition, we were stopped out of FRO at $37.25 this morning for a loss.

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world. He was the Editor of The Global Guru, a free weekly e-newsletter, and also edited the trading services Momentum Trader Alert, which focused on making short-term profits in the hottest markets in the world, and The Alpha Algorithm, which was designed specifically to deliver big, fast triple-digit winners, month after month. He was also the editor of Smart Money Masters, a monthly service focused on longer term investments recommended by the brightest minds in the business. Mr. Vardy has been a regular commentator on CNN International and the Fox Business Network. He has also published articles in The New Republic, The World and I, and The Baker & McKenzie Legal Review. The Global Guru/Nicholas Vardy has been cited in The Wall Street Journal, Newsweek, Fox Business News, CBS MarketWatch, Yahoo! Finance, and MSN Money Central. Mr. Vardy graduated from Stanford with a B.A. — with honors and distinction — in both Economics and History, and he also earned an M.A in Modern European Intellectual History. After winning a Fulbright Scholarship, he earned a J.D. degree at Harvard Law School where he was an editor of the Harvard International Law Journal. When not uncovering investment opportunities for his subscribers and investors, Mr. Vardy is a keep-fit enthusiast and an avid student of classical music.