Analysts said Chinese stocks' slump to a five-month low on Monday signals that now is the time to hunt for bargains.

The major Shanghai Composite Index dropped by 1.63 percent, or 36.77 points, to 2,224.11 as 44.9 billion yuan ($7 billion) worth of restricted shares went up for sale on Monday. The Shenzhen Component Index, which tracks smaller companies, was hit harder, falling by 2.77 percent to 9,414.21 points.

No individual industry showed better results on Monday. Shares of cement, coal and non-ferrous metal companies decreased the most, by about 4 percent on average.

Zhang Qi, a stock market analyst with Haitong Securities Co Ltd, said the market is at a low point.

"We recommend that investors buy a little more when valuations are low," he said. "Going forward, the index will be higher as China's growth rebounds and the situation in Europe gets better."

Wang Jianhui, chief economist with Southwest Securities Co Ltd, said he thinks the market is "oversold". He said he thought the Shanghai index would be between 2,300 and 2,350 points now.

"Things will get much better in July," he said.

In a development indicative of foreign fund managers' increasing interest in China's A-share market, Qatar's sovereign wealth fund is applying for permission to invest up to $5 billion in China under the qualified foreign institutional investor program.

Foreign fund managers have opened 13 new accounts in the A-share market, the most since March 2009, official figures showed.

QFII positions have always been one of the most important signs of movement in the A-share market. Since being introduced a decade ago, QFII has achieved average annualized returns of 11.9 percent. That performance has far outstripped that of Chinese fund managers.

Many analysts believe China's growth will proceed at its slowest pace in the third quarter and a revival in growth will shore up equities.

Market sentiment was affected by further news on weakened GDP.

In Hong Kong, officials from China International Capital Corporation suggested Q2 growth would drop to 7.3 percent.

In the first quarter of the year, the country's economy grew at a rate of 8.1 percent, a three-year low. On June 19, Barclays Plc, an investment bank, predicted that GDP growth will slow to 7.5 percent in the second quarter before rebounding to 8.4 percent in the second half of this year.

Measures meant to increase liquidity, including reductions in the reserve requirement ratio and benchmark interest rates, will encourage investments. HSBC Holdings Plc expects the reserve requirement ratio will be reduced by a further 200 basis points in the second half of the year.

Earlier this year, interest rates were lowered for the first time since 2008.

Shares in Anhui Conch Cement Co Ltd, the biggest A-share cement producer in China, fell by 5.08 percent after the company said it used a private placement to buy a 19.99 percent share in a fellow cement maker. Shares in China Shenhua Energy Co decreased by 3.3 percent to 22.61 yuan, the lowest since Sept 21, 2010.

Shares in China Vanke Co, a property developer, fell by 3.1 percent to 8.75 yuan, while those in Industrial and Commercial Bank of China Ltd gained 0.77 percent to 3.94 yuan.

Zhang at Haitong Securities said banking shares are among the most attractive judged by their valuation.

The price of banking shares is now at a historical low, as investors worry that steps the central bank has taken to liberalize interest rates will impede lenders' ability to make profits.

Lenders began to compete intensively in their rate offers after the central bank decided for the first time to allow lenders to set deposit rates within a certain range above the benchmark rate.

Many lenders have seen their price-to-book ratio approaching one, a ratio often seen among junk stocks. A ratio of one means investors can buy lenders' assets at their book value.

Industrial and Commercial Bank of China Ltd, for example, had a price-to-book ratio of 1.58 at the end of March, far down from 5.04 at the end of 2007.

Investors still have to wait to see such opportunities in coal stocks, according to the financial services company Huatai United Securities Co Ltd.