Stock markets are suffering another attack of the wobblies. Yesterday Hong Kong's benchmark Hang Seng Index slid 2.74 per cent, thanks largely to investors fears about Mexican pig flu. Perhaps the slump should not have come as too much of a surprise. Ever since bouncing back from its 11,015 low hit in the depths of last October's fire sale, the Hang Seng has been trading sideways in a broad range between about 11,300 and 15,750. After it failed to climb above 16,000 in the last couple of weeks on improving sentiment, a new sell-off was only to be expected. Not everyone is discouraged, however. Visiting Hong Kong yesterday, Anthony Bolton, president of investments at fund manager Fidelity International, reiterated his view that global equity markets reached their bottom in March and are now primed for a handsome 15 to 20 per cent rally later this year. London-based Mr Bolton is worth listening to. After more than 30 years in the fund management business, he knows a thing or two about investing. If you had given him GBP1,000 in 1979 when he set up Fidelity's special situations fund, by the time he stepped down from day-to-day portfolio management at the end of 2007, you would have been sitting on a reported GBP147,000. That equates to an annualised return of 19.5 per cent over 28 years, easily enough to make Mr Bolton one of the best-performing and most consistent fund managers around, and to establish his reputation as an investment guru. Even so, Mr Bolton says that only six or seven times in his entire career has he held strong views about overall market direction. Now is one of them. Several of his favoured indicators are pointing to an impending bull run. Firstly, stocks look attractively valued. In reaching that conclusion, Mr Bolton isn't just looking at simple price to earnings ratios, although stocks are indeed cheap on that measure. He also pays close attention to price to book value ratios, on which US stocks hit a 25-year low in March, and price to cash flow ratios, which fell to a 50-year low. On these measures, Hong Kong stocks also look cheap. The charts below show price to book and price to cash flow ratios for the MSCI Hong Kong index (which includes only Hong Kong rather than mainland companies). On both measures, Hong Kong stocks have recently fallen to valuations last seen during the Asian crisis of the late 1990s. Secondly, Mr Bolton pays attention to trading patterns seen during previous market cycles. He notes that from the peak to the trough in March, the US stock market fell 57 per cent, a drop second only in magnitude to the 1929 to 1932 bear market, which indicates to him that markets are now primed for a rally. Thirdly, he believes that ultra-bearish sentiment indicators signal a likely rebound. 'The stock market is so much about sentiment that when everyone is so extremely one way, it pays to bet against them,' he says. This sounds counter-intuitive but it makes sense. With the value of US money market funds at an all-time high of 47 per cent of total market value - almost double the levels reached in the 2002 and 1982 recessions - investors are extremely risk-averse, and cash holdings look to be at a maximum. In other words, there is only one way funds are likely to flow from here: back into equities. At some point in the next few months, Mr Bolton believes that cash-heavy investors are going to get frightened they are missing out on the returns available on stocks and pile back into the market, driving prices sharply higher. Curiously, one area Mr Bolton pays relatively little attention to is the economy, which he says always looks great at the top of a bull run and lousy at the bottom of a bear market. But he says some useful indicators like used car prices and housing affordability are showing encouraging signs. Let's hope he's right. As yesterday's sell-off shows, the market remains jittery, with many investors convinced the gains of recent weeks are merely a temporary rally in a continuing bear market. But if they change their minds over the coming months and stampede back into the stock market, Mr Bolton's view could yet prove correct.