Is liquidity sans fundamentals reason for global sell-off?

Did the global markets over-react to the news from US Fed or should the market be genuinely worried?

While Fed president Ben Bernanke allayed market fears by suggesting bond-buying will continue, the minutes of the last FOMC meet clearly show that some members increasingly feel the need to taper off the easy monetary stance, report CNBC-TV18's Anuj Singhal and Payaswini Upadhyay. However, an end of quantitative easing (QE) may signify a strengthening economy, so then why is the market unhappy? Commenting on the same, Adrian Mowat, chief equity strategist – EMs and Asia, JPMorgan, says "I don't think that the market knows what it wants at the moment. I would suggest that we should focus much more on if the economy is better. I think that is going to have a much more powerful and a sustained effect on equity markets and the moves that we have seen in interest rates at the long end. What is the Fed saying? – The Federal Reserve is saying that if the economy requires more QE, they are there to provide more QE." Also read: Stay with short bias; avoid banks till expiry: Experts The other big worry for market today was the huge sell-off in Japan, which had its worst fall in two-years on concerns that Bank of Japan too will slowly withdraw stimulus. However, experts point out that Japan had rallied 50% this year and the market seems to be over stimulated Meanwhile, Richard Gibbs, global head, Macquarie Securities says, "The real concern that the Japanese are on the verge of, I suppose, fuelling a major inflationary surge if we do not see very radical and necessary structural reforms coming through as part of this three-pronged approach by PM Shinzo Abe to reflate the Japanese economy. So, lot of commentary in the last couple of weeks about the fact that if the structural reforms are not forthcoming, then Japan really is fostering a very, very inflationary environment." Experts point out that India has its own worries to deal with. On Wednesday India's largest capital good company Larsen and Toubro came with a shocker of a result and on Thursday it was followed up by yet another disappointment from India’s largest bank, the State Bank of India. While there are several reasons for why the markets fell, it is a stark reminder of the dangers of a liquidity driven rally lacking in fundamentals.