China's equity markets tumbled Monday after the People's Bank of China struck a measured tone in response to last week's surge in interbank rates.
For the day, the Shanghai Composite index plunged 109.86 points, or 5.3%, to 1,963.24.
A statement posted Monday on the PBOC website called the level of liquidity in the banking system “reasonable,” and urged financial institutions to improve their “risk awareness” and “liquidity management.”
Some veteran investors predicted the market's short-term pain could pave the way for longer term gains.
“I think the intent of (China's) new government is to flush out the excesses in the financial systems, and they're prepared to see the pain on the part of financial institutions,” said Wong Kok Hoi, founder and chief investment officer of Singapore-based money management boutique APS Asset Management.
Mr. Wong, with two-thirds of his firm's US$3 billion in assets under management invested in China on behalf of qualified foreign institutional investors, said Chinese shares already are trading at an unchallenging level of nine times prospective earnings. The latest sell-off should probably be seen as a medium-term buying opportunity, he said.