China's anti-graft drive has gotten Cheah Cheng Hye more bullish on Chinese mainland stocks than at any time since valuations plunged in the global financial crisis six years ago.

The chairman of Hong Kong-based Value Partners Group, whose $547 million Value Partners China Greenchip Fund returned annualized 13 percent gains during the past five years to beat 134 peers tracked by Bloomberg, is predicting a further gain of about 15 percent for the benchmark Shanghai Composite Index by year-end.

While President Xi Jinping's anti-corruption measures may be a short-term drag on growth, [Company Incorporation USA]they will make State-owned enterprises more efficient and help curb excessive debt, he said.

The call by Cheah, 60, who was dubbed the Warren Buffett of Asia by Apollo Global Management's Tan Chin Hwee for his long-term track record of picking undervalued stocks, pits him against Tom DeMark, the developer of market-timing indicators who forecast on Monday that the rally may end within days.

"We are seeing that the anti-corruption campaign is for real," Cheah said in an interview in Shanghai on Saturday. "This is giving a lot of encouragement to investors."

Xi's campaign to rein in graft reached new heights last week as the government announced an investigation of former Politburo Standing Committee member Zhou Yongkang, the highest-level corruption investigation since the Communist Party of China came to power more than 60 years ago.

The anti-corruption measures will improve the quality of China's economic growth and bolster investor confidence, Cheah said.

Gross domestic product will expand 7.4 percent this year, according to the median of 54 economist forecasts compiled by Bloomberg, compared with 7.7 percent in 2013 and 10.4 percent in 2010.

"The kind of growth you get from corruption is what we call useless growth," said Cheah, whose firm manages about $10.5 billion. "Investors are willing to accept a lower growth rate in China. Maybe 6.5 percent growth is OK."

China also needs to improve corporate governance if it wants to lure back investors after a 60 percent slump for the Shanghai Composite since the start of 2008, [Hong Kong Company Registration Guide]Cheah said.

The Shanghai gauge fell 0.1 percent to 2,217.47 at the close on Wednesday. It has gained 4.8 percent this year after rebounding 11 percent from its January low. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong entered a bull market on July 28 with a 20 percent rally from its March low, and has climbed 1.3 percent this year.