China’s stocks sank the most in almost two months, pushing a gauge of volatility up from its lowest level this year as turnover surged.

The Shanghai Composite Index dropped as much as 4.5 percent, the biggest loss since Feb. 29, before paring declines to 2.3 percent at the close. Industrial and technology companies led losses, while 13 stocks fell for each that rose. The Hang Seng China Enterprises Index retreated from a three-month high in Hong Kong.

Traders struggled to explain the reason behind the sudden selloff, which isn’t an unusual occurrence in a market dominated by individual investors. Interest in mainland equities has been fading this month after March’s 12 percent surge amid concern that improving economic data will prevent the government from adding stimulus. Wei Wei, an analyst at Huaxi Securities Co. in Shanghai, says the slump is triggering concern that the panic seen at the start of the year, when the equity gauge sank 23 percent in the space of a month, could return.

Eoin Treacy's view

The Chinese market has been relatively inert for the last few months as the Authorities have attempted to quell speculation following what was a particularly volatile environment last year. An overextension relative to the trend mean has mostly been unwound so some profit taking is now taking place as investors begin to ask what next?

Following the rush to sell last year, the potential for investor appetites to grow is relative muted because the memory of sharp declines is still fresh in their minds. That would suggest a process of support building is probably required which would allow confidence to be gradually rebuilt. Today’s rally from just above the 3000 level suggests support coming back in but the more important level is 2750, representing the January/February lows which will have to hold if support building is to remain credible.