Chinese equities have lagged markets in the U.S., Japan and Germany this year. Investors now expect China markets to stage a recovery in the second half of 2023.

"(China) markets have baked in a lot of the doom and gloom in the economy given the declines since January's peak," said macroeconomist Aidan Yao.

Since stocks are still cheap relative to history and peers, a re-rating is unsurprising, Yao told the Reuters Global Markets Forum (GMF).

"Supportive catalysts are falling into place, engendering an attractive tactical market setup for stock operators to take risk," Goldman Sachs strategists wrote in a note to clients.

Official data points were soft in May, but high-frequency indicators suggest growth momentum is stabilising, they added.

Chinese authorities know it is time to act and have ample room for monetary and fiscal package stimulus, said Charles-Henry Monchau, CIO of Syz Group, which manages $25 billion in assets.

"The market wants to see a new support package coming. If it is the case, spreads will start to tighten across the board," said Monchau, adding that China is under-represented in portfolios.

Officials are likely to announce targeted stimulus towards consumption, housing and infrastructure, UBS' chief investment officer wrote in a note, adding that they remain "most preferred" on China stocks in Asia, forecasting 14% earnings growth this year.

CIO Mark Haefele suggests "a barbell strategy favouring recovery and consumption trades, including consumer and internet names, as well as material and industrial companies that can benefit from strong infrastructure investment this year."

Franklin Templeton expects the recovery in Chinese markets to happen in stages, with opportunities in the industrial equipment and banking sectors.

"China (is) at the nadir of its business and profits cycle, but also offering what we consider compelling valuations."

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(Reporting by Anisha Sircar in Bengaluru; Editing by Divya Chowdhury and Hugh Lawson)

By Anisha Sircar and Divya Chowdhury