“RISKY business these shares, wasn’t £48 billion wiped off the FTSE last week?” … comments a relative in a strong North Yorkshire accent.

It is true that shares fell sharply in August. However, what is happening behind the dramatic headlines?

The trigger to the volatility has been turmoil in the emerging markets and specifically China, where the Chinese government took the decision to devalue its currency. Why should this matter?

When a country devalues its currency it makes imports more expensive and exports cheaper. The impact on economies which sell to that country is that they will have to reduce prices or accept lower sales. Other emerging markets are most exposed to this – notably Russia, Brazil, Chile, the Middle East and other commodity-rich economies. Other markets may also suffer as they compete with, or sell to China.

From a corporate perspective, the disappointing thing is that a number of the companies affected by the fall in commodities prices form a substantial part of the UK stock market – naturally these include the large energy companies, such as Royal Dutch Shell and BP, and the mining companies. The UK stock market has other companies such as Burberry which compete in developing markets, though few compete directly with China. It has long been considered a shortcoming of the UK economy that it does so little business with the region.

Investors have begun to fret that price deflation will now impact the revenues of a greater swathe of companies. There should, however, be plenty (more radical) monetary solutions to the problem of UK deflation available to a Treasury and Bank of England who together control the issuance of currency. So we remain of the opinion that in the absence of inflationary pressure, the UK recovery will continue and stocks will reflect that.

The wisdom of the great financial minds of the present and the past is worth considering at this stage. Assets are cheaper when prices have fallen so it would be unwise to sell indiscriminately. As Warren Buffett would put it, investors should be “greedy when others are fearful and fearful when others are greedy”. At the same time, when the risk of a Chinese devaluation becomes a reality the prospects for some companies may have changed as a result or as John Maynard Keynes put it “when the facts change I change my mind”.

The difference between those companies selling commodities and those selling branded goods is as wide as that between night and day. If you sell a commodity you take whatever price is offered. If you sell a branded good then you have more scope to maintain or increase your price. Commodity prices are inherently difficult to forecast. Demographic changes in Asia’s mammoth national populations, whilst still challenging, represent a growth opportunity that is more tangible.

The most likely outcome for equity investors is positive. Whilst the outlook for the commodity producing sectors and regions may be very uncertain, the fundamental valuation support for equities has just received a boost because the likelihood of an interest rate hike has diminished. While interest rates are so low equities, and even bonds, look good value. Furthermore the UK energy producers’ loss is the UK consumers’ gain as energy prices have fallen. Going into 2015, the developed world saw the first coordinated increase in real incomes (increases over and above the rate of inflation) in several years and further falls in energy prices will only accelerate that trend.