Looking ahead, the Goldman strategists projects further monetary easing, even after four rate cuts since November and reduced reserve requirements for banks.

Nevertheless, Lau warned that small-cap Chinese stocks may still be overvalued.

For instance, the Market Vectors ChinaAMC SME-ChiNext ETF (NYSEArca: CNXT) has a 40.3 price-to-earnings ratio and Deutsche X-trackers Harvest CSI 500 China A-Shares Small Cap Fund (NYSEArca: ASHS) is trading at a 43.2 P/E ratio. Meanwhile, the Russell 2000 Index shows a 20.2 P/E ratio.

On the other hand, Lau favors larger Chinese companies, pointing out that the CSI 300 is heavier on low-priced financial stocks, which are trading at 17 times earnings, compared to 40 times back in 2007. ASHR, which tracks the CSI 300, includes a hefty 40.2% tilt toward the financial sector and has a 17.2 P/E.

For more information on China, visit our China category.


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