Now's the Time to Go Overweight on China

The sharp 20 percent pullback seen in the Chinese stock markets in the past two weeks will be short-lived, said Craig Irvine, co-head of regional research at Daiwa Institute of Research, attributing the correction to liquidity drying up.

“I think it is reasonably short- to mid-term, I think it doesn’t in any way interrupt the longer term overall recovery story,” Irvine told CNBC.

This is because demand globally has picked up from the crisis levels and we have passed the systemic risk period around global equities, which will help normalize liquidity flow worldwide, he said.

Irvine also said he is confident Chinese consumers are the ones who will lead the global recovery as the kind of structural growth and the wealth dynamic effect in China is very much intact, whereas Western consumers will be using their money to pay down debt -- a process which is likely to take some time.

As such, he prefers Asia to the West, and is going “overweight” on China.

“Stick with companies or sectors that are in industries that aren’t affected by overcapacity issues or external demand-type issues,” Irvine said.

China’s consumer discretionary plays, telecoms and infrastructure stocks are his favorites, but he is avoiding the steel industry due to significant overcapacity.