Chinese market stabilisation could lead to an EM rally

Emerging market assets have seen another sharp summer sell-off and while this year's edition has been more violent than the past three, the causes are rather familiar.

China is slowing, as it has been since 2011, and US monetary policy is about to tighten, as it has been since June 2013. Both of these factors are rightly concerns for EM equities but should not come as a surprise; markets appear to have overreacted. In fact, aggregate outflows from emerging market equity funds have surpassed $55bn year to date, this accounts for over 6.5% of assets under management and exceeds the $39bn of total outflows seen in 2008. This indiscriminate selling of EM equities, combined with the exceptionally negative sentiment around the asset class, suggests that w...