Since hitting a seven-year high in June Chinese stocks have slumped by more than a third, wiping £1.8 trillion off their value. This recent rout is becoming a grave concern for global investors, who fear the panic-selling could destabilise the world's second-largest economy at a time when its growth is already slowing.
China's central bank's attempts to support sinking stocks have so far proved ineffectual, as investors continue the rush to sell. But how much does the current turmoil in China indicate a worsening outlook in emerging markets growth more generally?
Emerging markets economist for Legal & General Investment Management (LGIM), Erik Lueth, says that the slowdown in China is part of a trend seen across several emerging markets.
He said: "After a decade where emerging markets were seen as the engines of global growth, they are currently undergoing a growth slowdown that has taken many forecasters by surprise and prompted many to wonder if this signals a change in the fortunes of these economies."
Analysis by the company has shown that growth in 16 emerging market economies was 3.5 per cent in 2014, down from 5 per cent in the 2000s and 4 per cent in the 1990s.
Craig Botham, emerging markets economist at Schroders, believes that the current meltdown in the Chinese stock market may further hinder its growth this year. He said: "The slumping stock market presents a real risk to the attempts to rebalance and refinance the [Chinese] economy, and a genuine hurdle to hitting the 7 per cent growth target for this year."
However, in spite of the recent stock market sell-off, China's GDP growth is still expected to be robust at around 6 per cent this year, compared with 7.5 per cent last year. Furthermore, Mr Lueth argues, emerging markets remain a good bet in the long term for investors.
Despite the current slowdown which China and others are experiencing, he predicts growth in these economies will outpace developed markets in years to come, predicting average growth above 3 per cent a year up until the middle of this century.
As ever the key for investors wanting to participate in emerging markets is to spread risk across a well diversified portfolio. It is best to choose a fund which invests in a range of countries across Asia or several emerging markets rather than one which focuses exclusively on China.
