NEW YORK (TheStreet) -- China's move to raise interest rates mid-October, for the first time in three years, spooked stock markets. In fact, it had a ripple effect as lending rates and deposit rates were hiked 25 basis points (bps) to 5.56% and 2.5%, respectively, to cool the overheated economy.

The October inflation reading of 4.4%, the highest since September 2008, could spark off a further rate hike. Meanwhile, rate hike worries triggered risk aversion and led to a 10% wipe out during the last two weeks. Economists believe that China will increase reserve requirement ratios by 100 bps as well as raise interest rates by 50 bps by March 2011.

However, we believe that these rate-hike fears are overstated and investors with risk appetite can enter the markets at these low levels and lock in their funds for the long term. We have identified 10 China large-cap stocks with upside of more than 13% and a market cap of at least $20 billion; investors can consider these for their portfolios.

The portfolio is diversified with stocks chosen across sectors like banking and financial services, mining, telecom and energy.

Banks and financial services companies like China Merchants Bank ( CIHHF, Bank of Communications ( BCMXY and China Pacific Insurance ( CHPXF are expected to deliver superior profitability in the upcoming days. Overall, analysts foresee earnings growth of 20% for 2010-11 for these stocks.

U.S. banks like Goldman Sachs ( GS, JPMorgan Chase ( JPM, American Express ( AXP and Wells Fargo ( WFC are trading at a discount, while Chinese banks listed here offer lucrative investment opportunities, considering that the fears of higher growth rates and asset quality are easing.

Companies engaged in coal and operation of coal mines like China Shenhua Energy ( CSUAY and China Coal Energy ( CCOZY have been preparing major expansion plans, focusing on cost-containment. We expect these two companies to deliver earnings growth of 20%. However, reports of the government stepping in to cap domestic coal output could be negative.

Energy majors like PetroChina Company ( PTR - Get Report) and China Petroleum & Chemical Corp ( SNP - Get Report), which are diversifying into natural gas, would benefit if the proposal to reform the natural gas pricing falls through. Analysts believe that Petro China and Sinopec have factored in the pessimism and can be bought on weakness.

The China energy stocks we have selected are trading at 7 to 10 times one-year forward earnings and at a discount, compared to Exxon Mobil Corporation ( XOM, Conoco Philips ( COP and Occidental Petroleum ( OXY. In addition, China Telecom Corporation ( CHA - Get Report) is a consumption play with diversified offerings.

PetroChina Company is a China-based oil and gas producer and distributor engaged in a range of petroleum products, services and activities.

Realized crude prices reached $71.76 per barrel, up 46% year-over-year, a major driver for third-quarter earnings. Realized gas prices reached $3.74 per million cubic feet, up 10%, following gas price hikes since June 1, 2010. Overall, exploration and production contributes about 70% toward the company's revenue, with gas contributing about 10%. Any news of reform of natural gas prices would be positive for the stock.

The company possesses more than 70% of national crude oil and natural gas reserves, which augurs well in the long term. Analysts upgraded earnings by 7% and 10% for 2010 and 2011, respectively. The stock is trading at 15 times its 2011 earnings.

China Telecom Corporation is a China-based integrated information service provider offering a range of telecommunications services, including wireline voice services, mobile voice services, Internet access services and value-added services.

Revenue from the wireline voice services segment accounted for 37.5% of total operating revenue during 2009. The transformation of CT from a wireline to a full-service provider is now at a critical stage, as revenues from this segment are dropping at the rate of 5% to 10% annually. While wireless and broadband services are the key drivers contributing about 40% toward revenues, their share in CT's revenue pie is expected to increase.

Better control of selling and general and administrative expenses ensured the handset subsidy coming in at 26% of CDMA service revenue for the first nine months, below the company's full-year guidance of 30%. Analysts point out that a reduction in handset subsidy and positive broadband pricing could improve the attractiveness of the stock, going forward. The stock is trading at 13 times its 2011 earnings.

Kweichow Moutai is engaged in the manufacture and distribution of the Moutai liquor series products. As China's leading liquor producer, the company is expected to double its output to 20,000 tons over the next five years.

The primary wholesale price of Moutai rose from $80 (RMB 530) in 2008 to around $110 (RMB 730) in 2009 and $140 (RMB 930) in 2010, respectively. Despite the price increase, demand remained strong. The increase in primary wholesale and retail prices has boosted the top line during the last three years, averaging around 25% in the last three years.

Going foward, primary wholesale prices, and retail prices of Moutai are expected to increase during the peak sales season, when supply could become tighter. Analysts expect earnings growth to accelerate in 2011 on higher prices and sales volumes. In fact, the stock price has factored in the information regarding the consumption tax, according to analysts. The stock is trading at 21.5 times its 2011 earnings.

China Petroleum & Chemical Corporation (Sinopec) is a China-based integrated oil & gas and chemicals company.

Among the top 10 refineries, China's largest refiner Sinopec owns eight refineries. Besides, Puguang Gas Field, or PGF, which commenced operations in December 2009, reported annual production and transportation capacity of around 12 billion cubic meters (bcm), which could be a key growth driver over the next three years.

Total capacity could reach 15 bcm per year after the Yuanba block commences production at the end of 2011-2012. The company's management expects production from Puguang's main block to continue for more than 20 years. Analysts expect PGF to contribute 5%-10% toward overall profits by 2012.

Other triggers include upstream asset injections from its parent, the Renminbi appreciation, and changes to its refined product pricing mechanism. The stock is trading at around 9 times its estimated 2010 earnings, at a 30% discount to its closest peers.

Bank of Communications is a China-based bank operating in four segments, namely corporate banking, retail banking and treasury. The stock trades on the Shanghai Stock Exchange under the ticker 601328.

The bank's branch network across China helps to capitalize on China's economic growth and valuation recovery of banking stocks, an advantage compared with other joint-stock banks.

At the end of third-quarter 2010, the bank's NIM was 2.44%, representing a 22 bps year-on-year increase and a 1 bp quarter-on-quarter increase. The increase is on the back of high-yielding loans growing faster than the demand deposits.

The volume of non-performing loans rose during the first three quarters, while the NPL ratio declined to 1.22% at the end of third quarter, down 14 bps from 2009. Additionally, the provision coverage ratio climbed to 167.95%, partially alleviating the pressure on provisions. Bank of Communications is estimated to achieve net profit growth of 31% in 2010 and 29% in 2011. The bank is trading at 1.35 times of 2011 book.

China Coal Energy is engaged in the production and distribution of coal. The company operates its businesses through its coal and coking business as well as coke mining equipment business.

The company generates three-fourth of its revenues from coal production and distribution and plans to double its production to 200 million tons by 2014, through new projects.

In addition, an incremental capacity of 20 million tons per year would be added by restructuring coal mines in the Shanxi province, which will become the company's extrinsic growth in the future. With rich resource reserves and a definitive output growth roadmap for the future, we expect the company's return ratios to increase gradually. However, analysts expect China Coal Energy's performance to peak between 2013 and 2014. The company is trading at 14 times its 2012 earnings.

China Shenhua Energy is a China-based integrated energy company engaged in coal production and operating coal mines.

The company announced better-than-expected third-quarter results, owing to the various adopted cost-control measures. Declining sales tax rates and management expenses have helped to improve profitability.

The company is eyeing to acquire coal and power assets from its parent company. Other assets include logistics and other non-coal businesses, whose profitability is lower than the coal business, with a return on assets of 9%.

The plans to double production by 2014 and probable asset injection by parent Shenhua Group are positives for investors. Besides, Shenhua plans to install wind power units with a total capacity of 5 giga watt by 2015. The stock is trading cheaper at 15 times its current earnings, compared to an industry average of 22 times.

China Pacific Insurance is a China-based insurance company providing, through its subsidiaries, a suite of products and services in life and property, casualty insurance, and pension to individual and institutional customers across the country.

Gross premiums grew at a robust 40%, supported by the strong performance in the bank and property insurance segments. The property insurance segment grew at 45%, owing to improved demand for auto insurance and favorable regulatory policies.

The company's investment assets stood at around $54 billion, up 14% since the start of the calendar year. Besides, the return on total investment came in at 3.2% for the first three quarters of 2010, besting that of Ping A Insurance ( PNGAY, but below that of China Life Insurance ( LFC. With stock markets rallying since October, net assets and return on investment are expected to improve during the fourth quarter of 2010.

Agricultural Bank of China (ABC) is a China-based bank with operations structured in corporate and personal banking, and treasury divisions.

The continual decline in non-performing loans (NPLs) is improving the bank's asset quality. The NPL ratio was 2.08%, narrowing 83 bps from the end of 2009.

ABC's overall profitability has improved owing to cost efficiencies. The cost-to-income ratio fell from 49.3% during the third quarter of 2009 to 40.5% for the third quarter of 2010, an indication that operating income growth was swifter than operating costs. Consequently, net profit for the third quarter grew 37% year-over-year.

The bank is witnessing improved business volumes with higher net interest margins and fee income. ABC has benefited from interest rate hikes this year, owing to the largest proportion of demand deposits among banks. Analysts expect ABC's rural loan portfolio to grow faster than overall loans and foresee a robust loan growth of 21% next year.

China Merchants Bank is a China-based commercial bank operating through personal and corporate banking businesses, as well as online and electronic banking services.

A lower cost-to-income ratio and improved net interest margin enhanced earnings growth during the first three quarters of 2010, with both rebounding 36 bps and 38 bps, respectively, outstripping the industry average. Analysts expect net interest margin to increase 25 bps for 2010. Further, development of the SME business would improve the bank's loan pricing power and strengthen its presence in the corporate banking space.

However, the bank's deposits and loans each grew 18.4% year-over-year during the first three quarters, lower than the industry average of 20% for deposits and 18.5% for loans. In the scenario of a gradual tightening in credit supply, banks with prudent lending policies could outperform the sector, say analysts. Net profit growth is pegged at 52% and 29% for 2010 and 2011, respectively. The stock trades at 1.89 times 2011 book.