China's GDP as of the end of 2005 was 9.9 percent with an industrial production of 16.5 percent. The U.S. GDP for the same time period was less than a third of China's at 3.1 percent with industrial production at 2.8 percent. Japan's IP was 3.8 percent while Germany's was slightly lower at 3.4 percent. China is growing at a rapid rate when compared to the rest of the world. This is one of the main reasons why to remain bullish on the China region.

The primary countries in the China region are Korea, Singapore, Hong Kong, Taiwan and the China markets. Compare the country indices in the chart below and then learn about the drivers that are helping perfomance in this region going into the new year.

*Annualized Total Return as of 6/30/06
Country	Index	1-Year	*5-Year	*10-Year
Korea	KOSPI	40.23%	25.15%	3.74%
Singapore	STI	21.57%	14.70%	4.46%
Hong Kong	HSCI	22.79%	7.33%	N/A
Taiwan	TWSE	9.02%	10.20%	0.17%
China (Shenzhen)	SZBSHR	39.05%	-2.20%	13.16%
China (Shanghai)	SHBSHR	45.57%	-13.68%	6.01%

Korea Outlook
Korea remains the cheapest market in terms of price-to-earnings ratios. On average, Korea is trading at a P/E multiple of 10.6 times 2006 estimates. The average P/ E multiple for the Asia-ex Japan markets is 13.6 times 2006 estimates.

Korea has underperformed other markets in the China Region year-to-date and part of that is due to its significant outperformance in 2005. A rotation occurred as investors sold off what did well in 2005 to move into markets that lagged last year. A second factor for the underperformance is the strength of the currency relative to the U.S. dollar. A strong Korean Won is bad for companies that export to the U.S. As a result, domestic investors tend to shy away from the local stock market in times of Won strength. What should offset this is U.S. investors looking to take advantage of the weak U.S. Dollar by buying foreign stocks. Given the discount to other China Region markets, Korea's underperformance may be an opportunity to buy shares in a country where inflation appears to be under control and growth should be sustainable.

China/Hong Kong Outlook
China experienced an acceleration of growth in the fourth quarter of 2005. This continued into the first quarter of 2006. As a result, the government decided it needed to take steps to cool down an economy in danger of overheating. Officially, the government would prefer GDP growth to slow down to the 8 percent level. This is a rate that can sustain growth without dangers of overheating. The government has already raised lending rates for the first time since October 2004. This is an attempt to reduce the level of investment in China so that not too many factories or other fixed assets are built, which would result in overcapacity.

A second factor attracting money into China is the possibility of revaluation of the currency. Investors have been expecting a significant upward revaluation of the Chinese Rmb. China has allowed a modest appreciation of their currency relative to the U.S. Dollar, but not enough to satisfy speculators or its foreign trading partners. The currency dispute was among the subjects discussed when China's president, Hu Jintao, visited the United States in April.

Given the outperformance of the Chinese markets as well as the H-share markets in Hong Kong, a pullback may be coming in the near term. The risk in investing in China with a short time horizon is that the government places austerity measures into place that slow down the economy too much. The longer-term growth story remains intact.

Taiwan Outlook
The bullish case on the Taiwan market is dependant upon improved relations between Taiwan and Mainland China. Closer relations would mean direct flights between China and Taiwan and the removal of investment restrictions between Taiwan and the Mainland.

The example that has investors excited is Hong Kong in the 1980s, when Britain ceded control of Hong Kong to China. The Chinese government, in an effort to win the confidence of Hong Kong, made several high profile investments there. This gave the Hong Kong economy a boost and improved relations between the two. The opportunity is to get into this market early, before the next Presidential election in 2008.