Best Performing China Stocks 2010

China Shen Zhou Mining (SHZ) -- +1,083.09%

Shen Zhou is basically a fluorite producer in Inner Mongolia with additional copper, lead and zinc resources in that same region and Xinjiang. The stock was bouncing around the $1-level from January to October, before it took off with the big theme of the fourth quarter, "Rare Earth Metals." The company only has a very small exposure to rare earths, if anything at all, and the stock price will likely come down hard when the theme is over and momentum traders exit the sector. Fundamentally, the stock should be fairly valued at around 2-3x book value, which currently stands at $0.86/share.

Yasheng Group (YHGG) -- +321.53%

Yasheng Group is a massive agricultural holding with annual revenues of more than $750 million. Its operations are in the Northwest of China where the company produces field crops, vegetables, fruit, beef and poultry. Early in 2010 the company has decided to take its status as a public company seriously again. It caught up with open SEC filings, became fully reporting again which allowed the stock to be quoted on the OTCQB. The company is heading for a senior exchange listing "in the near future." YHGG's price gains reflect these developments.

China Agri-Business (CHBU) -- +317.07%

Another agricultural play is CHBU, a producer of bactericides and organic fertilizers in Shaanxi. This widely unknown stock exploded in early December, apparently on a newsletter recommendation, but it managed to hold its gains and establish a new trading range. CHBU is not expensive here, trading at around 1.8x book and 6x earnings with explosive growth rates. It might see another pop to the $2-2.50 level this year.

Kingold Jewelry (KGJI) -- +245.76%

A relatively new reverse merger (December 23, 2009) that managed to secure a Nasdaq listing in mid-August. The company is based in Wuhan and designs and manufactures gold jewelry. Despite the large gains for the year, the stock lost 43% of its value since trading on Nasdaq, and I would recommend caution and quality due diligence before taking a position in the stock.

Eastern Environment Solutions (EESC) -- +171.42%

EESC is operating the landfill in the Northeastern megacity of Harbin (pop. 10 million). Since January 2010 the company expanded operations from just waste storage to recycling of especially plastic and PET bottles. This strategy works out well, and in Q3/10 EESC already generated 69% of its revenue from the sale of recovered bottles and bottle caps. The stock is a Trading China Model Portfolio position, and we expect further gains in 2011 as the stock is undiscovered, trading at only 3x trailing earnings.

Asia Pacific Wire & Cable (AWRCF) -- +148.97%

AWRCF makes telecommunication and power cables in China and especially also in South-East Asia (Thailand, Singapore). The stock has always been cheap, even after the roughly 150% gains in 2010 it is still trading at just 0.63x book value. However, this is a low margin business and Asia Pacific's account receivables are currently higher than its total market capitalization.

China Gengsheng Minerals (CHGS) -- +128.88%

Gengsheng doesn't have any exposure to rare earths, yet the stock was bid up in the current rare earths craze. Lesson learned... it doesn't matter to momentum traders if the company's business is deteriorating (negative net income growth of 45% year-over-year), or if the company clarified they are not part of this industry. For as long as this rare earths mania continues, the stock will likely be in play. With TTM earnings of $0.16, fair value for CHGS should be below $2, and this is where the stock will be heading when the momentum is gone. But don't fight the tape, it might as well go all the way to $10 before the inevitable happens.

China Energy Corporation (CHGY) -- +124.39%

The smallest of the U.S.-listed Chinese coal stocks has benefited the most from continued strength in coal prices last year. China Energy is in the final stages of getting approved for a NYSE Amex listing. A 1:3 reverse split has been approved and should become effective this January. With a current P/E-ratio of 4.x the stock is among the cheapest coal stocks and I expect further upside in 2011.

China Yuchai (CYD) -- +118.55%

Yuchai is a major producer of diesel engines and power generators in China. Historically the stock has been trading at very low valuations, even close to the $13.71 of cash/share the company currently holds. But that has changed in the second half of 2010, reasons include the government-ordered power restrictions which catapulted demand for diesel generators to unprecedented levels. The stock is no longer cheap here, but analysts from Piper Jaffray expect further upside in 2011 and raised their price target to $37 last month.