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What’s behind the recent market volatility?

Over the last three weeks investor complacency over the state of the global economy has been exposed as the deterioration in Chinese and Eurozone economic performance has combined to increase market volatility and spark a short-term rout in risk assets.

However while the fundamental reasons for the sell-off are undoubtedly economic, the technical trigger appears to be fears over the probable withdrawal of the US asset purchase programme, which has done so much to boost equity prices.

On a short-term view, the movements in equity markets over the last two weeks have not been pleasant with markets down and volatility up. While most equity investors won’t be cheering these moves, they must be put into the wider context of the very strong recovery posted by global equities since 2009. Indeed, we even argue that a correction from the recent peaks is actually healthy, bringing valuations back to a more appropriate level given the risks facing the global economy.

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