Mark Adams is director of research at AlphaShares in Walnut Creek, Calif. The money management firm specializes in developing investment strategies centering on Chinese markets for U.S.-based investors. Besides creating its own indexes, the firm also serves as advisor of two China-focused exchange-traded funds sponsored by Claymore Securities.

IndexUniverse: What's in store for China in the new year?

Mark Adams (Adams): China is in the best position of just about any country around the globe to come out of this global recession. At the end of November, its stock market was down more than 50%. It has rebounded a bit since then. But GDP growth in China will probably be the highest in the world among the major economies in 2009.

There are a lot of estimates floating around, but we're expecting GDP growth to wind up in the neighborhood of 5% to 7.5% by the end of 2009. That should still be a faster growth rate than most other Asian economies, including India.

IU: What sectors look like the best prospects going forward?

Adams: Similar to the U.S., anything related to infrastructure. The Chinese government has plans to keep boosting spending on everything from highways and roads to hospitals and schools. So construction, heavy machinery and industrials in general should do well in the new year. And it's important to remember that the government still has a lot of reserves to use, so they have a lot of weapons left in their arsenal if the economy remains sluggish.

IU: How is the real estate market doing in China?

Adams: It's hurting, although certainly not as much as in the U.S. But prices have been falling and the government is putting in place policies to stimulate that market as well. Property prices in 70 of the country's largest cities dropped 0.5% in November compared to the previous month. It's important to note that some areas seem to be experiencing larger drops and are clearly in worse shape.

IU: What caused that real estate downturn?

Adams: The government had been trying to put the brakes on a rapidly expanding property market. Just as they were really applying the pressure in terms of enacting those policies, however, the global slowdown spread to Asia.

IU: The drop in real estate prices in China hasn't been as severe as in the U.S., has it?

Adams: No; they're not experiencing massive foreclosures or anything like that in China at this point. But we still think Chinese real estate prices could drop more. On the positive side, the government in late November enacted the largest interest rate cut in 10 years. That should filter throughout the economy, including real estate markets. And the government is also starting to come out with new tax breaks to directly stimulate real estate sales.

IU: Manufacturing in China is also in a state of transition, isn't it?

Adams: The manufacturing sector is clearly slowing down. China was a place people used to go to find cheap labor. But wages have gone up and workers are moving into more urban areas to find better paying positions these days. And we've seen manufacturers climbing up of the technology ladder—in some cases very rapidly. Companies are moving up the value chain as their customer bases grow to tackle more-complex industrial processes. So, yes, the Chinese manufacturing sector is undergoing a great deal of change.

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