TAIPEI, Taiwan (TheStreet) -- A 20% plunge in China's stock markets since mid-June can't be labeled a mere technical correction. But even as stocks slide into bear market territory, investors are hoping the free-fall won't last for long.
Chinese stocks, in short, have entered a grin-and-bear market. Bear is for the steep decline and grin because investors, including foreign funds, trust that stocks will rise again.
Chinese "A" shares, those traded in the mainland Chinese cities of Shanghai and Shenzhen, continued to plummet on Monday even though China's central bank moved to cut interest rates over the weekend. Fallout from the Greek debt crisis contributed to the selloff.
Still, China is confident the market will rebound, if only because the economy is still growing faster than most other industrialized nations, including the U.S.
"The whole Shanghai market from a developmental point of view will become more internationalized and more regulated," said Zhao Xijun, deputy finance school dean at Renmin University of China. "We can't say it definitely reached a peak and will go down. The market will follow the economy upward."
On the bear side, markets this month fell because Chinese retail investors, the main impetus for the 150% gain in stocks over the past year, sold shares in mid-June to pay back loans. Because margin trading carries the risk of sudden selloff, the Chinese government may further restrict the practice following curbs earlier this year.
A list of initial public offerings, 23 of which were expected to hit the market in June, has also diverted funds from the broad market.
Some foreign investors fear high prices -- more than 100 times earnings -- have created a bubble that may now be bursting. Some prefer the more accessible and moderately valued Chinese companies that trade "H" shares offshore in Hong Kong.
"We are more comfortable with H-shares given the attractive valuations," said Will Leung, head of investment strategy with the wealth management side of Standard Chartered Bank (SCBFF) Hong Kong. "We are more cautious on 'A' shares as there are signs of irrational exuberance in the A-share market in recent weeks. It is true that China A-shares starting to exhibit some bubble-like behavior."
The market dominated by some of China's strongest companies stands to gain again as the country's 10-trillion-plus-dollar economy should grow about 7% this year, according to some analysts. Chinese regulators will keep it in line as stronger IPO rules and regulatory "reforms" emerge, Zhao said.
Only 271 foreign institutions have licenses from China to trade "A" shares, a frustration that may lead so some of that regulatory change.
"We believe policy easing and capital market liberalization will continue to drive Chinese equities," Leung said.
Investors from outside China can now tap the market by picking exchange-traded funds such as the largish Deutsche X-Trackers Harvest CSI 300 China A-Shares ETF (ASHR) or Direxion Daily CSI 300 China A Share Bear 1x Shares (CHAD), which is set up to earn money from a China bear market.