One lesson rammed home by August's turbulence in world financial markets is just how greatly price movements in different asset classes have become linked over recent years.
What started out as a slowdown in the United States housing market triggered a domino sequence of steep falls in the prices of assets around the world, from Asian equities, through regional high yield debt and currencies, to various metals.
But for Hong Kong stock market investors, the link with other asset markets now appears to have broken down. While local equity indices have rebounded to new records, regional credit markets have failed to recover. Understanding the reasons for this divergence will be crucial to future investment decisions.
The causes of the rebound in Hong Kong-listed stocks are easy enough to pinpoint. The steep falls of the first two weeks of August were arrested by the US Federal Reserve's decision on August 17 to cut its discount rate, ensuring banking system liquidity.
Market sentiment then received a powerful boost from Beijing's August 20 announcement that individual mainland investors were to be allowed to buy Hong Kong-listed stocks. Anticipating an influx of funds worth hundreds of billions of Hong Kong dollars, investors who had bailed out over the previous weeks rushed to get back in.
From its August 17 trough at 19,389, the Hang Seng Index rallied 22.5 per cent to set a record intraday high of 23,750.25 at yesterday's open (see chart). For stock investors, it seems the crash of 2007 is already fading from memory.
Dealers in other asset classes are less able to forget.
'The equity market is on drugs,' complains the head of Asian credit research at one major international bank. He points out that while Asian stocks have rallied formidably from their lows, Asian credit spreads - the premiums over US Treasury bill yields that Asian corporations must pay to borrow - remain close to their recent highs.
Yesterday, the JP Morgan Asia credit index indicated high-grade borrowers were paying 1.4 percentage points over Treasury yields, up from 0.8 percentage points early in June (see chart). Non-investment grade spreads had widened even further, to 2.85 percentage points from 1.51.
This divergence - rebounding stock prices with wide credit spreads - is unusual. Normally you would expect equity prices and credit spreads to be mirror images of each other with wider spreads meaning softer stocks.
The anomaly reflects the different markets' different preoccupations. While stock investors are excited at the prospect of a flood of mainland funds, credit specialists remain focused on upheavals in the US market. No-one on the credit side thinks the crisis is over, with Rob Gvozden, head of credit strategy for Asia at Barclays Capital advising investors to sell into any rallies.
This difference in view drives home how localised the equity rebound really is. Price rises have been concentrated in specific mainland plays such as China Mobile which is up 30 per cent in just over one week to a new record high.
In contrast, big international companies and habitual borrowers are suffering badly. Hutchison Whampoa, for example, has rebounded modestly from its low but remains down 14 per cent in little over a month, with few signs of recovery to be seen.