Investors wary of turmoil in Greece and Turkey, doubts about Abenomics, and uncertainty over the Fed's QE programme
When investors in the world's financial markets are in an anxious mood, such as in recent weeks, any new piece of information tends to be taken as a fresh reason to sell.
Their overarching concern – and the markets' frame for almost everything else that happens – is that the US Federal Reserve may be considering "tapering" its massive quantitative easing programme, amid signs that the world's largest economy is starting to recover.
It's unlikely that any change to the Fed's bond-buying plan is imminent; but the merest hint – dropped by chairman Ben Bernanke on 22 May – that the flood of cheap money that has supercharged markets could slow to a trickle has been enough to rock confidence.
Against that background, investors were already in a mood to pull funds out of riskier emerging markets, which won't look such a great bet without cheap money to gamble with.
Elsewhere the turmoil in Greece, with the abrupt shutdown of the state broadcaster prompting renewed alarm about the stability of the governing coalition, reopened familiar fears about the euro crisis.
Meanwhile, the violent crackdown on protests in Turkey – formerly seen as a paragon of stability – has given added impetus to investors' desire to run a mile from what is politely called "political risk".
Another set of markets rocked in recent days has been those such as Australia, where the economy is heavily dependent on exports to China. There are increasing signs that China is slowing as its growth model changes, and there are also alarming reports about the fragile state of the financial sector. A sharp downturn in China would rock a whole range of economies that rode out the Great Recession on the back of rampant Chinese demand.
The final factor alarming investors is that the gloss appears to be coming off Abenomics – the Japanese government's plan for radically rebooting the country's economy. Many commentators have been disappointed by the so-called "third arrow" of Abe's policies. In addition to fiscal stimulus and "shock and awe" quantitative easing, Abe was expected to use the breathing space created by QE to implement a range of structural reforms to kickstart stodgy businesses and rebuild the tax system.
But so far there has been scant detail. At the same time, the yen has been rising sharply – exactly the opposite effect to the one the Japanese authorities had hoped for – choking off the recovery by smashing demand for Japan's exports.
The markets' response to the initial announcement from the Bank of Japan that it planned to double the size of the country's monetary base was so drastic that even if the policy had been unqualified success, the Nikkei would probably have looked overvalued. But the niggling doubts about the policy's effectiveness are unlikely to be assuaged in the short term.
It was clear for some months that markets had become overvalued, getting ahead of the pace of recovery in major economies, and disregarding the continuing risk of turmoil in the eurozone and across a range of emerging markets. It is still not clear whether the selloff in recent days marks the end of the bull run artificially engineered by the world's central banks. But investors everywhere are bracing themselves for a long, volatile summer.
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