As expected China’s gross domestic product (GDP) posted solid growth in the third quarter, touching 9 percent. In the wake of this news, stories abounded about how the Chinese would likely raise interest rates to prevent the economy from overheating.

Investors should disregard these kneejerk stories; the National Bureau of Statistics of China recently released a statement reassuring investors that its monetary policy will remain accommodative:

…the basis of the economic recovery still needs to be consolidated, and the insufficient external demand is still severe, with the arduous task of expanding domestic demand and adjusting the structures. In the following period, we should . . . maintain the consistency and stability of the macro-economic policies . . . insist on the proactive fiscal policies and moderately lenient monetary policies…

As I’ve stated in the past, Chinese monetary authorities will target GDP growth of 8 to 9 percent next year; given lackluster growth in developed economies, the stimulus should remain in place. Any withdrawal of stimulus will occur gradually as the private sector picks up the slack, especially in the infrastructure area.

Domestic consumption and investment remain the driving forces behind China’s GDP growth, as exports were very weak. If exports to developed economies pick up in a meaningful way, then expect GDP to grow 9 percent next year.

My investment recommendations have targeted names that benefit from domestic growth, so I was encouraged to learn that per capita disposable income rose by 10.5 percent in the cities and 9.2 percent in the countryside.

Turning to the global markets, the US dollar’s share of total world FX holdings has gradually fallen from 71 percent in 1999 to 64 percent today, though it’s still the dominant reserve currency. I first wrote about this trend in 2002 and view this weakening process as a steady, multiyear affair–I usually don’t get caught up in the excitement every time the US dollar hits a rough patch.

I have always said that the dollar weakness will be an incremental process for the simple reason that it’s in nobody’s interest for the currency to crash. China is the biggest holder of dollar reserves and, together with Japan, the biggest holder of US Treasuries. The UK, oil producers, and banking entities in the Caribbean are the next three big holders.

For investment purposes, as long as bond yields remain low (yields on the 10-year Treasury note are currently less than 3.5 percent) investors should not expect a violent move in the US dollar. On the contrary, investors should expect the US dollar to stage a counter rally at some point.

However, investors should worry that the US government will assume that the aforementioned conditions make the ever-expanding deficit a viable option. That logic prevailed four to five years ago; with any luck people’s thinking has progressed a bit since then.

Turning to the markets, Asia ex Japan has doubled since last year’s lows and a lot of investors have been taking profits. Taking real profits of the table–like the ones investors in emerging markets have experienced since last October–is always a good strategy.

That being said, Asian stocks are trading at much higher valuations than in November of last year, when the markets traded at 8.7 times earnings and we advised growth-oriented advisors to concentrate on Asia. (See Go East for Capitalism, Nov. 20, 2008).

Although current valuations are quite rich, it’s important to remember that earnings quality is improving and the markets have commanded similar valuations in previous rallies–for example, in 1993, 1999 and 2007.

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.”