The mainland's key stock index posted its biggest single-day decline in 14 months yesterday, a rude reminder to investors of the inevitability of the boom-to-bust cycle.
The Shanghai Composite Index plunged 162.31 points, or 5.16 per cent, to 2,985.44 as a result of what analysts called panic selling amid expectations of an imminent interest rate rise.
The sharp fall, however, pointed to heavy profit-taking by speculative funds eager to lock in their gains from the latest rally.
'A correction was expected since speculative funds, including a large amount of hot money, have been looking to cash out,' said Bohai Securities analyst Zhou Xi. 'A severe single-day drop proved the funds were desperate to exit.'
Yesterday's drop was the largest since August 31 last year when the index fell 6.74 per cent. It was also the first time this month that the index fell below the psychological 3,000-point level.
With yesterday's drop, the index lost 4.6 per cent for the week.
