The underlying driver for the global economy is China which is itself is going through a transition that needs to be carefully managed but I believe it will succeed. The fact is that after a period of ultimately unsustainable growth, based upon the property building boom and the determination to rapidly expand, China is now predicting lower GDP , which is still very high by current western standards. In addition they have there are real concerns arising from the transition from a low wage ,export driven, manufacturing nation to a consumer society. This is certainly happening now but this comes at a price with deepening social problems.

The markets are reacting to that as well as recognising other key factors like the US position on their fiscal policy ( mainly quantative easing ) and the severity of the problems in Europe.

I have been restructuring my portfolios to include more US exposure and less Bonds. I have no exposure in Europe and I am still Asia centric. Ironically one of the best performing sectors has been the Japanese small to mid-cap. This is no doubt due to a weak currency fuelling exports but Japan now has in excess of a mind boggling quadrillion dollars of debt.

The middle East is very volatile due to the push for democracy and complex political and religious unrest. Africa is the next emerging market but this will take far longer than in other areas ( the BRIC economies ) as there is precious little infrastructure. The growth there in the short term is mostly based on minerals. India is suffering at the moment due to political difficulties and slowdown of demand from the west.

All in all the markets are finely balanced but my sense is that things will settle down and improve in the near future. It is really a question of the markets becoming used to a new set of rules and circumstances.