Long-term and institutional investors have been urged not overreact to volatility triggered by the Chinese stock market crash and interventions by the country’s central bank.

The last seven days has seen the Shanghai Composite Index decline 25% in the value, with the index falling 7% in Tuesday’s trading, and 16% since the start of the week.

While European institutional exposure to Chinese equities is relatively limited, volatility from the Shanghai exchange spread to other markets.

The turmoil was not immediately noticable to major indices, with the MSCI World having already witnessed a steady decline since 17 August, when it stood at 1,743.89. By Monday it had fallen to 1,589.50.

The gradual decline was mirrored on the S&P 500, which closed at 2,202.44 in 17 August, but was down to 1,893.21 by the end of Monday.

Earlier today, the Chinese central bank cut base interest rates to 4.6% and promised to provide more liquidity to its banking sector, in order to boost lending and consumer demand.

Harmen Geers, spokesman for €424bn asset manager APG, stressed it was too early to worry about the markets, or call it a market correction.

APG, which manages assets for €356bn Dutch civil service scheme ABP, said it lost €45bn in the 2008 market crash but made €35bn back the following year.

Despite the current losses on the stock markets, ABP’s assets are still at a higher level than a year ago, thanks to the strong returns last year and the first quarter of 2015, according to Geers.

He said the effect of dropping markets must be assessed in the context of the entire investment portfolio as well as a pension fund’s long term liabilities.

“When certain asset classes perform disappointingly, other investments often deliver better results,” he said.

Didier Saint-Georges, managing director at €58bn French asset manager Carmingac, said the market movement that began in China and commodities markets shifted to developed markets to trigger significant outflows – mainly from passive investment in listed funds.

“This, compounded with summer trading liquidity conditions and scare stories about China started a chain reaction,” he said.

He added: “At this stage, we are talking about a [Chinese] economic slowdown, not a meltdown. But the markets are vulnerable.”

He said this vulnerability came from the recent rising market driven by quantitative easing across the US, UK and the euro-zone – with led to a rerating of equities.

Combined with this was developed market central banks having nothing left in the toolbox to protect their economies from a significant economic slowdown, driven by China.

Paul Markham, a global equity manager at Newton Investment Management, blamed the Chinese government itself for the market volatility.

“The Chinese government’s attempts to cushion the blow through monetary policy and market manipulation have proven unsuccessful, causing another round of market turmoil,” he said.

“Investors may wait and see before making any aggressive long-term changes to allocation. In the past, it has paid to ‘buy the dips’, but at some stage this strategy may no longer work,” he added.