The global turbulence triggered by China’s stock market crash should not obscure a greater truth: policy shifts in Beijing are positive for developed economies. Investors should look to buy US equities on the dip.

The sharp structural slowdown in China, long predicted but wilfully ignored until now, is a catastrophe for exporters of natural resources and deflationary for most emerging markets, with the exception of Mexico and India. China and most other emerging economies are likely to see continued demand deflation in the next 12-18 months and further nominal currency depreciation. We believe the renminbi could fall another 5-10 per cent.

But this is ultimately good news for developed markets. Wasteful investment in China, now being wound down, has been depressing global returns for a decade. Tumbling commodity prices, by transferring income from producers to consumers, act as a tax cut for rich-country households. This is what is needed in a world lacking genuine consumer demand. These divergent trends fuse together in our “deflationary boom” outlook for the world. Our analysis suggests both the deflation and boom still have further to run, with investors likely to keep lurching between the positive and negative aspects of this pattern of growth.