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A screen on the floor of the New York Stock Exchange shows the closing number for the Dow Jones industrial average, Thursday, Aug. 20, 2015. The DJIA slid 358 points, 2.1 percent, to 16,990.Richard Drew/The Associated Press

An escalation of the emerging-markets sell-off rippled through global markets on Thursday, shaking confidence in the world economy as investors traded down risk assets.

The confluence of weakening emerging-market currencies, slowing growth and sliding commodity prices has capital gushing out of developing markets, with stock markets everywhere dogged by a deterioration in investor sentiment.

"Institutional players are increasingly nervous," said Kara Lilly, a strategist at Mawer Investment Management. "The slowdown we're seeing and the outflows we're seeing reflect genuine deterioration in the underlying economies."

In Asia, Europe, the United States and Canada, trading on Thursday reflected new concerns that global growth is waning. MSCI's index of Asian stocks excluding Japan neared a two-year low, the blue-chip Euro STOXX 50 index dropped by 2.1 per cent, the S&P 500 index swung to a loss on the year, and the S&P/TSX composite index dropped by 1.9 per cent to set a new low for 2015.

"The bears definitely have the upper hand," said Stephen Lingard, senior vice-president at Franklin Templeton Solutions.

Policy makers in developing markets are struggling to contain the damage, resorting to currency devaluations in the wake of China weakening the yuan earlier this month. Kazakhstan became the latest to deliberately devalue its currency by removing its peg, triggering a slide of 25 per cent on Thursday. On Wednesday, Vietnam implemented its third devaluation this year.

The wild swings in foreign-exchange markets are fuelling an exodus of capital out of emerging-market economies. "We're seeing a combination of slower growth, weaker currencies, and then concern from investors creating capital outflows, further weakening the currency, which makes the fundamental situation more difficult. It's a vicious downward spiral," Ms. Lilly said.

Investors pulled nearly $1-trillion in assets out of the 19 largest emerging markets over the 13 months up to the end of July, according to NN Investment Partners. That rate of capital flight is close to double that which left emerging markets in three quarters through the global financial crisis in 2008-09.

In the years after the financial crisis, the global investing community flocked to emerging markets, which served as the engines of global growth as the developed world convalesced.

From July, 2009, until the end of June, 2014, investors sank $2-trillion of net assets into those 19 economies, NN Investment Partners said.

"At the time, China had ample balance-sheet capacity to take on debt to support growth, and that's exactly what they did," said Louis Lau, director of investments at Brandes Investment Partners. Credit grew rapidly and infrastructure projects supported economic growth, which in turn strengthened commodity prices, further helping resource-based emerging market economies.

"In the last couple of years, we've seen a substantial weakening in that dynamic," Mr. Lau said.

The prospect of the first U.S. Federal Reserve rate hike in nearly a decade has also weakened emerging-market currencies against the U.S. dollar, while contributing to capital outflows.

On Wednesday, the Fed's minutes showed officials in broad agreement that the U.S. economy was nearing the point where interest rates should move higher. But they also noted that lagging inflation and a weak global economy posed too big a risk to commit to a rate "liftoff."

"Today's movement is an illustration of a dramatic shift in sentiment," said Tom Digenan, head of U.S. equities at UBS Global Asset Management. "The Fed minutes certainly added to the fear factor. Any negative or even neutral news adds to it. Neutral is the new negative in this environment."

With a report from Reuters