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Deepanshu Bagchee on Asia-Pacific
CNBC.com | December 01, 2011 | 02:33 PM EST

1. China's housing market will correct.

The over-investment in housing will finally catch up with China, with property prices falling and many investors getting burned. Still, the correction will disappoint the doomsayers given that China's mortgage debt remains modest by Western standards. Banks will face higher non-performing loans because of the credit they have extended to developers. All in all, a housing correction — though painful — will be much needed to prevent an even bigger bubble, and China's government will announce policy measures to soften the housing correction.

2. Chinese stocks will outperform.With the property market offering deadbeat returns, interest rates remaining low \(as the government tries to ease the pain of a housing correction\), investors will finally return to stocks. After a three-year slump, Chinese equities will rally as investors realize the virtue of buying into a market currently trading at just 11 times earnings.

3. Japanese bond yields will rise.

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