The volatility in today’s emerging markets is best explained by the changing relationship between the world’s two economic superpowers: the US and China.

The continued turmoil in emerging markets, including the sharp sell-off in risk assets, should be viewed as a byproduct of China rebalancing and the US once again taking the lead as the driver of global growth. Therefore investors should not lose sight of the bigger picture and forget that, ultimately, the US-China economic relationship will always underlie what happens in the global economy in the long and short term.

Despite the slowdown in China and the emerging region more generally, and the negativity that this story continues to attract, the rebalancing taking place is in fact healthy for China and indeed the rest of the developing economies.