Obviously, this laundry list of reasons for the sudden cratering is a long one. I'll cop out here and simply say that it was a confluence of various events that sent bourses the world over cascading downwards. Nevertheless, what is undeniable is that the run-up in stock prices has been overdone in Shanghai. Via Safe Haven:
Among companies listed in both Shanghai and Hong Kong, the spread in valuations has increased widely since 2005. The Price/Earnings (P/E) ratio for companies listed on the Hong Kong market is close to 18, but the P/E ratio for the same companies in Shanghai is 33. The Chinese stock market has now become the most expensive in Asia, trading at 40 times 2005 earnings, compared to 16 in Hong Kong. The high P/E ratio is supported by expectations of 25% earnings growth for 2007.The euphemism for stock market plunges is called "correction." I've always wondered: If these speculative bubbles need "correction," then were stock markets "wrong" to go up so quickly in the first place? The next few days will test how solid the foundations are of this latest stock bonanza. Let's just say that I have my doubts. It's Chinese New Year; I doubt whether it will be Happy.
This is in stark contrast to several years ago when the Shanghai Composite was the third-worst performing global benchmark after losing over half of its value from 2001 to 2005 amidst scandal, secrecy, corruption, and poor earnings. At the start of 2004, a man attempted to light himself on fire in front of the offices of China's stock market regulator in Beijing to protest about the collapse in share prices.