Bank of China

Here is one sign of improving market sentiment: money is heading east again. Over the past fortnight, foreign investors have ploughed more than $500m into Asian equity funds, reports EPFR Global. And why wouldn't they? One of the most popular barometers of risk appetite – the MSCI Asia ex-Japan index – has gained almost a fifth since touching a four-year low at the end of October. Over the same period, the S&P 500 has shed a 10th. Nine of the top 10 stock indices this year are in emerging markets, led by China's 28 per cent surge. Templeton's Mark Mobius, among other luminaries, says it is time to back up the truck and chase bargain assets.

Beware the rallying bear. In January 1998, when Asian markets had halved from their July 1997 peak, flows into regional funds also turned positive, points out Citi. But those who got in then lost about a third of their money before markets finally bottomed in early September. Back then, the proportion of assets held in cash in Asian-focused funds also peaked at 17 per cent – five times higher than current levels. Other indicators, such as price/book value, are scarcely more tempting now. So far, real estate is the only sector marked down to the lows reached during the last recession.

The most intense phase of the financial crisis may well be over. But the economic crisis is only just limbering up. Take China: in the past week alone, steel prices slipped further, foreign direct investment contracted sharply, coal sales tumbled, power demand remained anaemic, fixed investment in property hit a multi-decade low, and the finance ministry ordered big cuts to travel and entertainment budgets to arrest a rising budget deficit.

Investors sorely want China to save the world: almost all the new money into Asian funds was into exchange traded funds tracking China and other China-focused funds. But a more reliable indicator than the Shanghai market, off limits to most foreigners, are the H-shares that trade in Hong Kong, down 6 per cent this year. Hardly the hallmark of a dawning bull market.