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After hitting a record high in October 2007, the Shanghai stock exchange hit a new 16-month low on June 19, a full 55 percent lower than its peak eight months earlier. Twenty percent of that 55 percent drop occurred in the past 19 days alone.
Also on June 19, Reuters reported that the price gap has started to close between Chinese blue-chip companies’ listings within China and their listings on foreign exchanges (where they typically are valued lower). If the current downtrend in Chinese equity prices continues, this gap could well close without the massive dive in markets and subsequent widespread social panic that Beijing fears. But would this be a permanent deflation of the Chinese equity bubble?
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