The recovery of the Hong Kong stock market from the falls which followed the terror attacks one month ago has been far quicker than expected. Yesterday's surge in the Hang Seng Index, which took it back through its September 11 level, consolidated a buoyant three weeks after the nadir of 8,934.2 on September 21. 'I must admit it's bounced back a lot faster than we thought - we're trying to understand it ourselves,' one fund manager said. Analysts said that markets had been encouraged that no 'worst case scenarios' had been played out despite fears of renewed terrorist strikes and a destabilising military response from the international coalition. 'We have certainly come full circle from the tragedy . . . the world didn't end,' said Lehman Brothers sales trader John Mar. UBS Warburg strategist Ian McClellan said that the contained nature of the air strikes against Afghanistan had calmed investor nerves. 'We've had some confirmation of the bad news but it's been no worse certainly than people would have feared in the immediate aftermath on the economic front and so far on the political front as well,' he said. Before the terrorist attacks, Hong Kong had been Asia's worst performing index this year. The day before the attacks, the Hong Kong market - trying to come to terms with a sharply slowed US and domestic economy - was down 30.99 per cent on its price at the start of the year. 'We had basically been in a very aggressive market sell-off for three months. Globally, the Hang Seng [Index] was getting absolutely caned and you can say that there were a lot of signs of capitulation,' said Mr McClellan. With stock prices driven down to Asian crisis levels by the shock of the events, Mr McClellan said that the market had been poised for a rally. 'The shock of September 11 came on top of a major bear phase so you added a bear phase to a bear phase - they had been set up for a rally,' he said. Much of the initial pessimism had hinged on fears of a tidal wave of fund redemptions as investors sought refuge from falling equity prices. When these failed to materialise, analysts said that many fund managers were sitting on mountains of cash. 'The average person in the street hasn't come in with big redemptions and cash is trying to find a home,' said the fund manager. Mr Mar said that many fund managers had been forced back into the local market, willingly or not: 'Funds, whether or not disliking the market, have nevertheless had to participate because the market is moving up and they are sitting on a lot of cash.' Despite the U-turn in Hong Kong and other markets, investors still face a world much changed by September 11. The attacks triggered a series of profit warnings, job lay-offs, drops in consumer spending, downgraded economic forecasts and near bankruptcy for many airlines. On the other hand, a globally co-ordinated monetary easing has seen key US interest rates drop by 100 basis points with sizeable fiscal stimulus packages being announced in the US and Asia including Malaysia, South Korea and Hong Kong. Mr McClellan said that the attacks had crystallised many of the fears which had led to the gradual sell-off in the Hang Seng Index this year. 'Before, we were in this sort of gradual water torture of things not getting better. [Now] there's arguably a little more clarity on what the situation is - albeit it's worse than before,' he said. However, noting the deterioration of the economic environment, the fund manager argued that the index had moved too far, too fast since the attacks. 'If it gets any higher than before September 11, it just won't make sense,' he said. 'The economies will recover, but more into the second half of next year and based on that, markets are running a little ahead of themselves. At this point in time it's a little too euphoric in my opinion,' he said.