Cyclical names should continue to do well, especially in Asia, but investors should consider some defensive plays--I favor consumer staples names with exposure to Asia.

The point to understand here is that the year-long rally in emerging markets isn’t based on the conviction that the global economy is completely out of the woods and that the Anglo-Saxon financial system has resolved all its problems.

If markets have no major hiccups for the rest of October and into early November, expect them to move higher through the first few months of 2010, with November, December and January being the “money months.”

At home it was a "golden week" for China's economy; abroad the Chinese lobbied for a greater say in policy decisions that shape the international economy.

At current levels, energy, telecommunications, financial, industrial, and material companies appear to be the cheapest in Asia.

The end of easy oil remains arguably the most powerful driver in the sector, though the unprecedented drop-off in demand that occurred in the wake of the credit crisis and resultant economic dislocation has obscured this long-term trend. But with the global economy and credit markets now on the mend, this theme should come back with a vengeance over the next few quarters.

The rally in emerging market equities has been broad based, though the Chinese market has led the way. But next year country and stock selection will become increasingly important to the asset allocation process. Expect “sustainable growth” to become next year’s buzz phrase.

I continue to recommend that investors focus on quality and overweight key cyclical industries. Technology resources, energy and some infrastructure (e.g., ports) remain relatively undervalued in many emerging markets, while valuations in Russia and some other high beta markets remain below previous highs.

The table is set for the US economy to surprise on the upside for the simple reason that expectations are so low. Should this transpire, global markets should easily rise 20 to 30 percent in the next twelve months--even if a correction takes place in the meantime

Chinese policymakers are focused on managing the current boom and, more important, the credit cycle. For this reason, investors should look outside China for the big outperformance--assuming the global economy doesn’t relapse.