GOLDMAN SACHS: Now is the time to buy Chinese stocks

The Chinese markets might be crashing, but analysts at Goldman Sachs thinks the sell-off is over-cooked and that stocks are cheap.

Goldman analysts said shares could rise 36% from current levels by the end of the year as the Chinese government boosts its stimulus. This is barring a major financial crisis of course.

The stimulus is key, along with the way people are trading at the moment.

Goldman says traders have stopped looking at the financial underpinnings of stocks and are trading based on macroeconomic trends, like growth forecasts and industrial production. This means some stocks are looking cheap because their ratio of price to company earnings is low.

Here's how they see it:

Goldman says much of the bad economic data is priced in already and the overall investor pessimism on Chinese stocks doesn't match up to reality (emphasis ours):

We fully recognize the cyclical and well-documented structural headwinds that China currently faces; however, these concerns seem quite well priced in Chinese equities from various valuation methodologies that we have discussed. In addition, given the intricate macro, market, and micro linkages that regional and global economies have established with China, the meaningful valuation discounts of China vs. its global peers seems to argue favorably for a relative-return case for the former, in our view.

It would take a strong stomach to follow through on this. Chinese shares crashed again today, despite a rate cut from the People's Bank of China yesterday aimed at boosting demand for stocks.