Here is a broad summary:
Why the sell-off
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· While China’s growth story and plunging commodity prices may have been at the back of investors’ minds, China surprised markets in early August when it moved to devalue its yuan.
· This fed fears that China was slowing faster than expected and triggered a vicious cycle of capital outflows.
· The capital flight put downward pressure on emerging market (EM) currencies, resulting in weaker import demand and growth and spurring further outflows.
· Investors are now worried that the global economy could plunge into a recession, as EM accounts for about half of global GDP.
· This fear has caused equities to be sold off, led by EM and Asia and spreading to developed markets like the U.S., Europe and Japan.
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