Although the Chinese market rallied by about 60 per cent in 2009, it lagged behind the stronger performances of the other big emerging markets such as Brazil (121 per cent), Russia (100 per cent) and India (101 per cent).

As such, the Chinese market offers further upside potential and could catch up with the gains of the other markets this year. Trading at about 13.5 times forecast 2010 earnings, projected to grow by about 20 per cent, the valuation of H shares (Chinese companies listed in Hong Kong) or red chips (Chinese companies incorporated outside the mainland but listed in Hong Kong) remains attractive.

This valuation is supported by China's robust economic recovery in 2009. Third-quarter gross domestic product grew 8.9 per cent from a year earlier while exports rebounded by a much stronger-than-expected 17.7 per cent in December after 13 months of decline, providing a solid backdrop for ongoing strong performance of the Chinese economy. We forecast at least 8 per cent GDP growth in 2010.