Shanghai Shock: An Analysis
China was only an excuse. The real issue is a rise in risk aversion and lower global liquidity
It all started with rumors swirling around at the Shanghai stock exchange. The Chinese market has been red hot, rewarding investors with returns of 130 per cent in 2006 and hitting new highs this year. Since the beginning of the year, however, fund managers started questioning whether the high valuations of Chinese companies were sustainable. The nervousness increased in early February, when a vice-chairman of the China National People’s Congress said that people should be wary of investing at current prices. Foreign investors in China and Greater China equity funds lost no time in cashing out, pulling out $627 million in the first week of February.
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