The steady and controlled capital appreciation that characterised global markets since mid- 2006 came to an unexpected halt in late February, when the MSCI World Index had come within an ace of its all-time high.
Confidence stalled
An unexpected sell-off in the Shanghai stock market triggered significantly greater falls in other speculative asset classes, such as emerging market equities and commodities. Volatility spiked, as leveraged investors scrambled to reduce their risk exposure, with widespread substantial losses. The catalyst for the fall was the rumour that China might introduce a capital gains tax to clamp down on speculation. Foreign investors read this as a prediction of an economic slowdown, with the likelihood that emerging market risk had suddenly increased. In addition to these factors, the publicity given to Alan Greenspan’s comment about the significant risk of recession in the US, and the collapse of the sub-prime mortgage market rattled investors.
