For the second straight trading day, the benchmark Shanghai Composite Index of the A-share market ended lower on Friday (down 0.24 percent), but its decline is unlikely to deter foreign institutional investors from rejigging their China portfolios in favor of certain sectors; if anything, their selective pickings may well inspire retail investors to follow suit and hunt smart bargains, market mavens said.

Any such strategy may prove risk-free or even profitable as the SCI has remained around 3500 points for nearly three months now, they said.

This week, northbound capital, a term that refers to overseas investors buying A shares via the Shanghai, Shenzhen and Hong Kong stock connect programs, actively chased stocks of technology companies engaged in photoresist and lithium cells.

For instance, overseas investors raised their holdings in Allwinnertech Technology Co Ltd, which has businesses related to Semiconductor Manufacturing International Corp, by 1.61 percent this month compared to July.

Similarly, overseas holdings in Naura Technology Group and Crystal Clear Electronic Material rose by 0.23 percent and 0.27 percent, respectively, this month from July.

Data from financial services provider Morningstar showed that Fidelity International, a prominent global asset management company, has started to increase its holdings in Chinese companies since late July.

One consumption-themed portfolio of Fidelity held up to $623 million worth of Tencent shares at the end of July, up 3.22 percent from the previous month. Its holding in Alibaba also increased 1.85 percent month-on-month by the end of July.

Fidelity has also increased its holdings in Kweichow Moutai, China Mengniu Dairy, Meituan and China Mobile, among others.

Two equity funds of Schroders, a British AMC, have also increased their Chinese assets since late July. Alibaba, Tencent, China Pacific Insurance, Thunder Software Technology and Zijin Mining Group were among the many stocks that Schroders expanded in its portfolio as at the end of July.

On-demand service platform Meituan, which trades on the Hong Kong stock exchange, has seen its share price slump by nearly 60 percent so far this year.

Bourse data showed Baillie Gifford, a 113-year-old Scotland-based investment management firm, bought more than 9.46 million shares of Meituan on July 28 for HK$1.91 billion ($245 billion), inflating its stake to 5.12 percent from 4.94 percent.

Market insiders said it is possible China's recent regulatory clampdown on industries like tutoring and technology may have spooked some, if not all, global investors.

But, BlackRock, the world's largest AMC, said in a note earlier this month that it sees "little spillover risk from China's assertion of greater control over certain industries, even as it potentially leads to market volatility".

Acknowledging China as a distinct pillar supporting global growth, BlackRock picked out the country from emerging markets and ascribed a neutral stance on Chinese equities as it "multiples larger than typical benchmark weights".

BlackRock said it sees opportunities emerging in sectors that benefit from monetary easing or are less prone to regulatory tightening.

Pictet Asset Management's Chief Strategist Luca Paolini holds a similar stance. He said that a withdrawal from Chinese stocks is not warranted.

The tighter grip of Chinese regulators on certain key industries is regarded as a belated response to innovation and the breakneck growth of such industries that flourished in the absence of a regulatory framework, he said.