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Market selloff: What’s really to blame?

Monday's global market rout, set to continue throughout the U.S. trading day, has caused consternation and panic, with sharp falls across almost all asset classes.

So where has this come from and what has sparked it? CNBC breaks down some of the most important factors.

Global economic problems

Increasingly loud signals that Chinese growth is slowing down might be the trigger – as you can see from the sharp falls in the benchmark Shanghai Composite index in recent days. It closed down 8.5 percent at a five-month low of 3,210.8 on Monday.

However, China is far from the only market to disappoint. Major high-income economies like the U.S. and U.K. have also reported tepid growth figures and some of the major emerging market economies, such as Brazil, are much worse off. The official survey by the Brazilian central bank now sees the economy shrinking in 2016 as well as 2015.

Currency wars

After the high-profile devaluation of the yuan earlier this month, China may be blamed as the ringleader in the currency wars, where countries compete to push their currencies lower in order to boost exports.

Read MoreCurrency wars: Who's next to pull the trigger?

However, China is arguably a follower rather than a leader, with other countries, including Japan, Russia and Brazil, beginning the process some time before.

Central banks

The re-fueling of debt-backed assets, which has prompted many of the recent margin calls, occurred after the biggest mass of asset-buying or "quantitative easing" programs ever enacted by central banks.

When concerns have been expressed about these programs, the central banks have generally maintained that this round of debt-fueled market optimism is different to previous market cycles. Whether this was accurate has yet to be seen.

Traders work on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters
Traders work on the floor of the New York Stock Exchange.

Market correction

This theory suggests there was "froth" in stock market valuations which wasn't really backed up by economic fundamentals – particularly in China. This means that the current selloff is just bringing markets back to more realistic valuation.



August

One factor that could potentially exaggerate the swings in global markets is purely that there are fewer traders in the market and lower volumes than, say, September. That's because August is traditionally a quiet month for trading, with many people on vacation.

On the other hand, trading volume last week was pretty high, with the biggest volume day of the year for some indices. And once everyone is back at their desk, September could be even worse...


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