"Major risks in the A-share market are volatility and also policy," Tam said. "There may be further increases in interest rates and banks' required reserve ratios, or other unexpected measures."

JF Asset Management is allowed under the qualified foreign institutional investor program to invest in Chinese stocks. Tam said she had been trimming back some of her holdings in shares "that have enjoyed a good run," like those of banks.

Still, Liu is finding bargains by using a so-called bottom-up strategy, which concentrates on individual stocks without considering possible changes in economic trends.

"A lot of stocks have entered the area where you want to buy," said Liu. "When the market is pessimistic, it fails to see there are still a lot of positive factors. Market movements and macro economic trends are only for reference when I make adjustments to my portfolio."

Besides, government efforts to damp appetite for equities were aimed at individual investors, Liu said. Such investors account for about 60 percent of the market, according to Wu Jianxiong, an analyst at Guotai Junan Securities in Shanghai.

Liu spends one-third of his time visiting companies and hardly ever buys the stock of one not covered by analysts.

"I'm seldom the first one to discover a stock and buy it," he said. "People are crucial. Sector allocation, on the other hand, is only supplementary."

Related readings:  Two new funds raise $3.3b in 1 day Greater role for private-equity fund urged  Greenspan sees dramatic drop in Chinese stocks  China has stock 'bubble' - Li Ka-shing

He also has to be certain about a company's growth outlook, even if that means forfeiting returns. He declined to buy the shares of Sany Heavy Industry, the nation's biggest maker of pumps for concrete, when they were first recommended to him in June last year because of "lack of stability" in the company's earnings history. He missed out on a 124 percent gain in its share price in the second half.

After visiting the company, he bought the shares in January. The stake is now Taihe's fourth biggest. Sany Heavy has jumped 165 percent in 2007 as first-quarter profit surged sixfold because a construction boom helped it sell more machines.

Though Liu says he likes to hold on to his stocks, he admits that he often has to roll with the dice.

"I do want to hold stocks for, say, five years, but in a market as volatile as the one that we have here, share prices sometimes jump and reach my target in just one day, so what am I supposed to do?" Liu said. "It wouldn't make sense not to sell them in a short time under such circumstances."

Almost half of Taihe's assets are invested in manufacturers because Harvest analysts have conducted in-depth research on the companies, he said.

Hudong Heavy, the fund's top holding, has jumped 280 percent this year. Net income at the company almost doubled last year on increased sales.

"As a fund manager, I don't want to win by betting on overall market movements," he said. "I rely on making good stock selection and portfolio construction to make money. I've reaped good returns from recent market consolidation."