Stock market investors are taking a remarkably sanguine attitude towards risk at the moment. They are especially laid back about the danger that United States interest rates will rise further. If the US Federal Reserve does confound expectations by signalling a further increase in rates, it could easily trigger an abrupt sell-off in the stock market. Ultimately, however, any big fall in prices is likely to present investors with a good buying opportunity. At the moment, with leading indicators for the world's big economies softening, US house prices falling, and the price of oil down 24 per cent over the past three months, fears of accelerating inflation have largely evaporated. As a result most investors seem convinced that US interest rates will stay where they are for now. The price of federal funds futures traded on the Chicago Board of Trade indicate zero expectations of any increase in short-term interest rates between now and March next year. This may be too optimistic. Core inflation is still above the Fed's comfort zone and central bank officials are dropping hints they may be prepared to push rates higher if price pressures do not abate. They may not. Although lower energy prices will reduce increases in the headline consumer price index, they have already boosted consumer confidence and so could end up adding to core inflation by encouraging stronger demand. Meanwhile, the low unemployment rate in the US is helping to push wages higher, which could also prove inflationary. As a result, Charles Dumas at the respected London economics consultancy Lombard Street Research now puts the chances of further rate increases at greater than 50 per cent. Of course, the Fed is unlikely to spring a surprise on the markets. Past experience has taught how devastating that can be, so any upward move is sure to be signalled in advance. Even so, engineering a change in market expectations is a tricky and often painful operation. In May, fears that rising inflation would prolong interest rate increases prompted a major market shake-out. Investors cut their exposure to risky assets triggering a sell-off in commodities and emerging market equities. Global volatility shot up, and the Hang Seng Index shed 12 per cent in a matter of weeks. Those losses have been more than recouped since. But if the Fed were now to begin flagging another quarter percentage point increase in interest rates at its December meeting, it could easily trigger a fall of similar magnitude, wiping out most of the Hang Seng Index's gains for the year. In the longer run, however, another rate rise or two are unlikely to damage the bullish outlook for Hong Kong and Chinese stocks. Geoff Lewis, the head of investment services at JF Asset Management, points out that the aggregate of US money supply together with official holdings of treasury and agency debt is trending upwards. That indicates that global liquidity remains plentiful despite recent rate increases, as do high levels of merger and acquisition activity. In addition, despite the run-up in stock prices, investors' weightings to equities remain relatively low. Hedge funds, for example, have a net exposure to stocks of 48 per cent, down from 58 per cent a few months ago. Mr Lewis predicts that will soon rise. If investors do increase their allocations to equity, much of the money is likely to flow towards Hong Kong. China remains the world's favourite investment story. And any sell-off in the Hang Seng Index prompted by fears of further rate rises could present the perfect opportunity for investors who have missed the latest bull run to get into the game. 'If markets drop 10 per cent,' says Mr Lewis, 'it will be buy, buy, buy.'