NEW YORK (TheStreet) -- The negative effects of China's economic slowdown and the pullback in its stock market are being overstated in the marketplace, according to Anthony Cragg, portfolio manager at Wells Fargo Advantage Funds.

"I'm sure most people would think that China hugely underperformed the rest of the world. In fact that's not true at all," said Cragg. "It's been one of the best performing markets, even now, even after this correction."

As of Monday, he pointed out, the Shanghai Composite Index was down just 8% year-to-date, compared to the Dow Jones Industrial Average's drop of 10%.

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Cragg said the slowing of China's economic growth was inevitable, and reflects the new reality. But, he said, the situation in China, along with weak commodities prices, argues for selectivity in emerging-market stock selection. "To lump all emerging markets together never really made much sense, and particularly doesn't now, given oil and commodity prices at this level,' said Cragg.

He noted that low commodity prices may be a negative for commodity-producing countries like Russia and Brazil, but beneficial to countries that are net importers, such as China and India. For that reason, Cragg prefers investing in Asia over other emerging markets. He also believes Asia is more politically stable. The fund's biggest sector allocation is in financial and industrial stocks. Cragg is investing in banking stocks, environmental companies, and some developers, particularly in China.

"The real end-user demand is still healthy in China because of rising wages over the last few years, while supply has actually contracted," said Cragg. "In the economic slowdown, developers have been more reticent about embarking on big projects, so you have quite a good supply/demand situation, a little bit like the U.S., where after 2008, property companies pulled back."

The Emerging Markets Equity Income Fund, which Cragg manages, has a three-year average annual return of 6.58% as of June 30, compared to a 3.71% return for the MSCI Emerging Markets Index.