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Despite an outright bearish outlook on the global economy as a whole, particularly as it pertains to developed markets, China's emergence as an economic superpower is becoming increasingly evident. My trading focus is therefore slowly shifting from shorting dying dinosaurs of the West to buying the great tiger of the East.

The situation is somewhat reminiscent of early 2009, when trailing earnings made developed markets look fairly priced, yet emerging market stocks far and wide traded at single digit P/Es. Today discrepancies are far more extreme. Thanks largely to incessant talks of a property bubble in China, foreign investors have once again been scared into avoiding exposure to the fastest growing economy of the last decade.

Current valuations on well documented, highly integrated Chinese companies eliminate incentives to take massive risks often associated with China small caps. The following three stocks sit at the top of my buy list and stand to benefit from growing domestic consumption in China.

Netease (NTES): Somehow the second greatest performing Chinese internet company has significantly lagged competitors in stock performance. Netease is a leading web portal deriving revenue from popular online games, advertising, other web-based products and services. Sina (SINA) has hardly increased revenues despite acquisitions over recent years and failed to frofit in FY2010. The stock trades at 15x sales while NTES trades under 7x. Only Baidu (BIDU), with a P/E near 50, has grown top and bottom lines faster than Netease. With an earnings ratio under 15 and a new version of exclusively distributed World of Warcraft set to be released, investors have an excellent opportunity to gain exposure to the fastest growing industry in the fastest growing country on the planet.

China Mobile (CHL): Infrastructure spending in the world's largest country continues to outpace larger economies. Mobile technology integration is at the forefront of that effort and China Mobile is the leading telecom provider in the country. Despite a healthy dividend yield over 4%, sector leadership, consistent top and bottom line growth the stock trades at a steep discount relative to domestic peers China Telecom (CHA) and China Unicom (CHU), neither of which has a performance history as successful as China Mobile. CHL is a buy-and-hold investors dream and currently trades at the bottom of its five year range.

American Oriental Bioengineering (AOB): Sometimes we bargain hunters just can't help ourselves. Despite falling into the mired Chinese small cap category, AOB offers hundreds of products to documented consumers across the home of over a billion people. Threats of Western medicine overtaking China's traditional treatment industry are immensely overblown and unfounded. Chinese people will continue utilizing natural concoctions that have kept them healthy for thousands of years. Slowing profit growth and relatively weak overall Chinese stock performance have driven AOB down to 5x trailing earnings. The former highest conviction hedge fund holding is one I'll look to add after establishing a position in at least one of the larger Chinese companies discussed above.

For investors seeking China exposure without any risks associated with owning shares of an individual company, ETFs with broad exposure to Chinese stocks exist. My preference would be Morgan Stanley's CAF, which holds shares of companies only traded on Chinese exchanges. iShares FXI is the alternative and holds a variety of ADRs listed on major U.S. exchanges.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CAF, NTES, CHL over the next 72 hours.

Source: 3 Cheap Stocks That May Benefit From China's Growing Consumption