China's local A-share stock index is up almost 143% in the last 12 months, according to Morgan Stanley Capital International Inc. Heightened concern that Chinese stocks were overheating was clearly behind a senior Chinese government official's criticism of the market's valuation earlier this week, a cold appraisal that toppled Chinese stocks and their related U.S. listed shares on Wednesday.

"There is a bubble growing. Investors should be concerned about the risks," Cheng Siwei, vice-chairman of the standing committee of the National People's Congress, said in an interview published in the Financial Times on Tuesday.

"In a bull market, people will invest relatively irrationally. Every investor thinks they can win. But many will end up losing. But that is their risk and their choice," Cheng added.

Gao noted that buyers have been "over-excited and over-optimistic" about Chinese stocks.

"Corporate fundamentals are still good, but the market overall is running ahead of the fundamentals," Gao said. "The government wants to remind people that there's risk in the market and you need to be more cautious in terms of stock trading."

The fund manager said he's lately become cautious about Chinese consumer and financial stocks, offsetting exposure to these portfolio mainstays with investments in companies involved in developing China's infrastructure, such as toll road, bridge and port builders, utilities and power plants.

"Those sectors are comparatively cheaper than the high-flying financials and consumer stocks," Gao said.

One recent addition to the portfolio is China Communications Construction Corp., the country's leading builder of port facilities, bridges and railways. Gao is also upbeat on longtime fund holding Huaneng Power International Inc., an independent power company with plants across China.

"We are quite positive still on the long-term fundamentals, and China is going to need build-up in infrastructure," Gao said. "Those companies we believe have very good growth."

While Chinese stocks may correct further in the near term, Gao said the country's economic growth prospects and corporate outlook is strong. He expects China's economy to continue growing in the 9% to 10% range annually for at least the next couple of years. Such robust expansion, coupled with effective government controls to keep expansion on a high but stable track, ultimately bodes well for Chinese stocks, Gao said.

Indeed, he said, for investors with a multiyear horizon, "any corrections or big sell-offs are opportunities."

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