A large run-up in big-name stocks has put the Hang Seng Index at a lofty 16 times forward earnings but their mid-cap cousins might still have room to gain. The upside potential for large-caps would be limited to 5 to 10 per cent for next year, according to JP Morgan analyst Steven Li. Instead, mid-cap and China plays offer better valuations and long-term prospects compared with their large-cap counterparts. Present equity valuations for large-caps already factor in much of the anticipated good news, Mr Li said. And 'we don't see re-rating potential from this level' despite the continued recovery in the economy and corporate earnings next year, he said. 'Property stocks look overvalued. Bank stocks are also trading at the high end of their valuations.' In addition, Mr Li said massive fund-raising exercises from mainland companies could absorb the liquidity flowing into Hong Kong and limit the upside for the Hang Seng next year. At the top of Mr Li's shopping list are: mainland carmaker Denway Motors, piped-gas distributor Xinao Gas Holdings, home-improvement tools maker Techtronic Industries, chip-assembly and packaging-equipment manufacturer ASM Pacific Technology, shoemaker Kingmaker Footwear Holdings and knitted-fabric producer Fountain Set (Holdings). Mr Li expected the companies to deliver a total return of at least 22 per cent next year. Other analysts also prefer mid-caps. Hantec Investment associate director Michael Wong said short-selling and hedging activities could make the share prices of large-caps more volatile and less reflective of their fundamentals. Since the start of the year, the Hang Seng Hong Kong Mid-cap Index has risen 40.48 per cent, against 27.83 per cent for the Hang Seng Hong Kong Large-cap Index.