We have been aware for some time that there are two important transitions occurring in the global economy.

Attempting to gauge their effect on financial markets has been more problematic – certainly there were few signs of alarm before August.

The first obstacle to examine is the transition of China from an export and capital investment-led economy to one that relies more on the domestic consumption of goods and services.

This has been a goal of the government for some time, dating back to the years running up to the financial crisis.

It was clear to them that a low-value-added export economy had limited growth potential – after all, global export markets are only so big.

The financial crisis interrupted their plans, forcing a shift towards aggressive capital investment in infrastructure especially, but this was also unsustainable owing to the fact that it was financed almost entirely with debt.

At the same time, the latest roster of party leaders, led by premier Xi Jinping, embarked on a crackdown on corruption amongst government officials, leading to a sharp slowdown in demand for certain luxury goods.

This might all have been bearable but for the fact that the rest of the world was suffering its own post-crises hangover, with demand remaining sluggish.

It is much easier to embark on tough reforms when external demand is strong as they often involve taking a step backwards to move forwards.

The second problem is the turning of the interest rate tide. The Fed is determined to exit emergency conditions after more than six years of zero interest rate policy.

It wants to replenish its interest rate ammunition in anticipation of an inevitable future cyclical downturn in the economy (boom and bust has certainly never been abolished), and it is also concerned that low interest rates encourage misallocations of capital.

This is happening against a background of the European Central Bank (ECB), the Bank of Japan (BOJ) and the People’s Bank of China (PBOC) continuing to loosen monetary policy, thus leading to intense upward pressure on the dollar, creating its own headwinds for US companies.

Taken individually these influences might have been more tolerable, but they have intersected in emerging markets, and it is from here that the bulk of the market’s concerns about growth emanate.

China’s commodity heavy growth encouraged enormous investment in new capacity, and much of this is arriving on the market just as demand slows, leading to vertiginous falls in the prices of industrial commodities such as oil, iron ore and copper.

Meanwhile emerging economies have also benefited from an inflow of dollar liquidity in search of higher returns. The threat of higher US interest rates has tempered and even reversed this flow, leaving the developing world gasping for air just when its need is greatest.

Despite this confluence of concerns, we continue to believe that China’s fate remains firmly in its own hands and that remedial measures already taken, such as loosening both fiscal and monetary policy, will steady the ship before the end of the year. As for US interest rates, the onus remains on the Fed not to tighten prematurely, but by the same token they must not “get behind the curve” in terms of allowing an inflationary cat out of the bag.

Recent market falls reflected lower confidence in both the Chinese government and the Fed.

That confidence was rebuilt to some degree in October, but it would be optimistic to declare that we have now passed safely through the transition period.

Europe remains our favoured region for playing a recovery. The economy is beginning to gain traction after several poor years, and is reminiscent of the UK in early 2013.

The banking sector is now in a much better state and credit is once again available to potential borrowers.

The housing market is turning for the better and overall confidence is rising. While not wanting to get carried away, we see this as the early stages of a more durable domestic recovery.

No doubt there will be some buffeting from overseas influences, and there are also political obstacles ahead, such as the ongoing saga in Greece and a tricky general election in Spain at the end of the year, but uncertainty once again offers opportunity.

One thing is for certain, the man in charge at the ECB, Mario Draghi, is prepared to put his full weight behind an accommodative policy and any setbacks in Europe will not be for the want of monetary stimulus.

To summarise our current views, confidence in global recovery remains challenged. Lower oil prices has acted as a tax cut to consumers, although they have been saving more of the windfall than expected.

Europe is finally seeing upgrades to growth forecasts, the US has been held back by the energy sector and the stronger dollar, but employment trends are firm. China has confirmed a 7% official growth target.

Absent external shocks, global monetary policy and the strong dollar should support continued growth, although lower than originally forecast at around 3%. That should lead to a recovery in earnings trends, but ongoing greater volatility is to be expected.