China shares have been mired in a long downturn, caught between expectations low valuations would attract bargain hunting and fears the country faces a credit crisis, but some analysts see trading opportunities.
"No matter which way you go you're going to lose," Viktor Shvets, head of Asia strategy research at Macquarie, told CNBC Monday. "China is a Catch 22."
The performance of China's stock indexes certainly suggests investors have had the losing end for quite a while. The Shanghai Composite has shed more than 30 percent over the past five years, even as other regional markets have rallied solidly off lows touched during the global financial crisis.
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China's markets have been undermined by slowing economic growth as well as concerns over bad debts and the shadow banking and property sectors.
Shvets doesn't believe a credit crisis is likely to emerge on the mainland over the next three years, but he still sees difficulties trading the market.
"You have to be careful because investors in China are exactly in the right areas," he said. "Everybody is in IT and technology and industrials and consumer discretionaries," Shvets said.
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"You're trading in the areas where China is sustainable longer term. But you're very crowded."
But he sees trading opportunities in "uncrowded" sectors, such as the bank and property sectors as well as state-owned enterprises, especially during periods when they are cheap.
He noted a couple months ago when China banks were trading at around 0.7 times book value.
"Chinese banks should never, ever go up to one times book until they fully recapitalize and recognize the NPL (nonperforming loan) levels they are running. But when it's 0.7 times, you can make a bet that perhaps people are too negative. And it can jump to 0.8 or 0.9 times, which is pretty much what happened," he said.
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"When people are depressed about China, that's the time to buy," Shvets said. "So when MSCI China goes down to 58-59, you buy it," he said, adding he expects it could rally as high as 65. The index is currently trading around 61.
Others also see trading opportunities in China stocks, even though the economic outlook remains uncertain.
"The tipping point is between manufacturing [growth] taking us higher and real estate taking us lower. And at this point there is very little visibility in terms of who will win this battle," Dariusz Kowalczyk, an Asia ex-Japan strategist at Credit Agricole, told CNBC.
He expects the economy will recover in the second half of the year, boosting the stock market, but he added: "It doesn't mean we will end the multi-year downward trend."
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However, he views the shares as "cheap," and holds shares in a Hong Kong-listed China tracker fund.
Nomura has also noted some increased interest in trading China shares. "In stark contrast to the risk-averse questions raised by investors in February and March 2014, recent questions raised by investors are indicative of fear of missing out on the rally" in offshore China equities, Nomura said in a note Friday.
The bank noted investors believe China's risks are well-known and priced in, and with the central government introducing "mini-stabilization measures," investors are asking, "what is the point of fighting a government that has a bigger wallet than we do?"
But for its part, Nomura believes "the annual low in the MSCI-China is likely still months away," and it advises being both defensive and selective.
—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1