Investors have not yet given up on the 11-month-old world markets recovery and there is little evidence so far this year of a retreat to safe-haven bunkers in the face of mini-shocks from Greek debts, China's monetary tightening and U.S. regulatory threats.
The wobble in world markets since mid-January has raised some concerns about a double-dip of the world economy amid credit crunch aftershocks in sovereign debt markets, over-zealous monetary tightening and severe banking regulation.
World equities, captured by MSCI's world index, have shed almost 10 per cent since Jan. 11 after surging more than 70 per cent over the preceding 10 months.
Peripheral European government bonds have been hit hard by the Greek crisis, but corporate investment and junk-rated debt have also retreated to the levels of late autumn. And the Reuters-Jeffries CRB commodities index is off more than 5 per cent.
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"Core" government debt has benefited, with 10-year U.S. Treasury and German Bund yields down 15-20 basis points since the turn of the year. And even 10-year British gilts, feared by some due to burgeoning British deficits and an upcoming election, have held close to Jan. 1 levels.
Yet many funds and strategists view the past month as merely a setback in the longer-term cyclical rise of equities and relatively risky assets.
"We feel there's been a sufficient washout of markets and many of these new concerns have been factored into the price. That's probably healthy," said David Shairp, Global Strategist at JP Morgan Asset Management. "We're still fairly actively invested in terms of risk assets."
One key measure of financial stress during the height of the recent credit crisis and recession was the wholesale exit of investors from all equities, non-government debt and commodities to the safety of low-yielding cash in money market funds.
Seen as measuring how safety and liquidity are at a premium when visibility is low, the ebb and flow from money funds remains an important global pulse in an environment where moves in developed and emerging equities, commodities and corporate bonds are all highly correlated. This defines the "risk on/risk off" trade.
Using fund tracker EPFR's data on U.S. money funds, this barometer saw a net flow of more than $600-billion (U.S.) to these funds during 2007 and 2008 as markets nosedived and then a net outflow of $468-billion last year as asset markets reflated.
But, using this mutual fund data at least, there is little or no sign of a return to these bunkers this year so far.
Outflows from money funds this year have continued at a pretty healthy clip, more than offsetting a calendar-related blip higher seen at the end of December.
EPFR's data showed further net redemptions of $9.62-billion in the week to Feb 10, a week that included some of the worst of the Greek debt jitters before the European Union summit. Startlingly, it brought total net outflows from these funds in the year to date to some $80-billion.
The figures tally with the U.S. fund data compiled weekly by the Investment Company Institute, which shows that total money market mutual fund assets fell by almost $100-billion to $3.198-trillion in the same week compared with the end of 2009. ICI data showed that both retail and institutional funds fuelled the exit.
It's possible European money funds data have behaved differently, but the latest authoritative cuts only take us up to the end of November. Analysts, however, doubt they have diverged too much from U.S. counterparts and said there was no real evidence available to suggest that.
"There is still a lot of cash on the sidelines," said Christopher Probyn, chief economist at Boston-based State Street Global Advisors, which has some $1.9-trillion under management.
Mr. Probyn reckoned the Greek crisis was overstated, China's early tightening of bank reserve requirments would ultimately be seen as positive and Washington's proposals on U.S. bank curbs would eventually get watered down.
With none of the big four central banks likely to raise interest rates this year, he reckoned the outlook remained sanguine for equities and debt. "The (Greek) issue is being exaggerated to the downside. This is not a new sub-prime."
One other factor underlying the persistent optimism is that Wall St market volatility gauges - traffic lights for many funds - remain relatively relaxed compared with their more alarming levels at the worst of the credit crisis.
The so-called Vix measure of implied equity volatility is less than 23 per cent. Although well up from January lows under 20 per cent, it is well below peaks over 30 per cent as recently as November and over 50 per cent this time last year. U.S. Treasury market volatility, captured by the 2- year/10-year swaption rates, has been flirting with two-year lows meanwhile.