The IMF on Financial Market Risks

The IMF released their latest "Global Financial Stability Report" today. Marketwatch reports:

WASHINGTON (MarketWatch) -- Blame for the recent turmoil in global stocks should not be laid at China's feet, a new study released Tuesday found.

Although stocks' sharp drop in late February began in Shanghai, "the broad and global scope of the sell-off suggested the underlying causes lay elsewhere," the International Monetary Fund said in its latest report about stability in financial markets.

The report covers the period during late February, when the Dow Jones Industrial Average fell 416 points in one day, leading to the largest weekly percentage decline in the blue-chip benchmark since March 2003 and upending global stock markets.

The correction was triggered by a reappraisal of the likelihood of a soft landing for the U.S. economy, the IMF's study said. Market participants were clearly worried after data suggested that the bottom of the U.S. housing market might not yet have been reached and as weakness appeared in measures of U.S. business investment.

Prior to the correction, long rallies in several markets made overextended positions "especially vulnerable" to downside risks, the IMF said. Investors had taken larger, and more leveraged, positions to sustain strong returns. In the end, the turbulence in stocks, which subsided for the most part by mid-March, didn't alter global monetary-policy projections and didn't lead to lower growth forecasts for key countries, the report concluded.

Is this report reassuring, or worrying? I'm not quite sure. I think you could make a reasonable argument either way.