Since late April investors have, according to most surveys, built up major money market positions and, as reflected in the current low yield levels, significant long positions in US Treasuries and German Bunds. This flight to safety was triggered in April and May by investor concerns over eurozone sovereign and bank risk and, more recently, by increased expectations of a slowdown in the US economy.

Investor behaviour in the past three months has followed a typical pattern of risk reduction, with capital flows into what are perceived to be the safest assets - i.e. G3 government bonds. A relevant question, however, is whether this perception of safety is likely to change and whether investor capital flows will be directed differently in future times of market and economic stress.

David Fuller's view During the last five years Fullermoney has often maintained that investors' perceptions of regional risk needed to be turned upside down. With sadness, this service described the US economy as the epicentre of global risk well before the collapse of Lehman Brothers. Countries with relatively strong GDP growth and budget positions, plus high domestic savings, are safer havens for investors.

Evidence that perceptions of relative risk are beginning to change is provided by the relative strength in recent months of some emerging (progressing) stock markets from Asia, to the sub-Continent and South America.