Fevered rallies and dramatic falls go with the territory of investing in mainland China. But even by Shanghai’s wild standards, yesterday’s plunge was one to remember.

By the close of trading, the Shanghai Composite had tumbled 7.7 per cent — its biggest fall in five years — erasing all its January gains. Having been the best performing market in the world last year, China’s volatile streak has been swiftly exposed once more.

The immediate trigger was a move by the China Securities Regulatory Commission to clamp down on margin lending at the big brokerages, which all saw their stocks down by the daily limit of 10 per cent. Borrowing to invest in equities has been a key driver of Shanghai’s charge upwards, with margin financing almost tripling between June and December to hit Rmb767bn ($124bn) last week.