Is this the year when the other shoe finally drops? The world’s credit markets collapsed last summer, triggering acute liquidity crises in the short-term money markets, and a wave of losses for the biggest financial institutions. But world stock markets survived relatively unscathed. Developed stock markets ended the year somewhat higher than they started, while emerging markets enjoyed a huge rally. There were also big profits to be made in a range of commodities. How long can this go on?

Two broad questions need to be answered. The first concerns the credit squeeze: how much damage will it do to the real economy? On this issue, sentiment shifted sharply in the first weeks of this year. Previously, the orthodoxy had been that the squeeze had been created by irresponsible practices within the financial services industry, and that the damage could be contained within that sector. This led to an unusual pattern in which financial stocks fell more than 20 per cent while the market as a whole rose. Developed world stocks had moved almost exactly in line with financials for the previous five years, so this was a startling divergence. Either investors were unduly negative towards financials, or the rest of the market was defying gravity. By the year’s end, there were clear signs that investors favoured the latter hypothesis as they shifted to cover themselves against a slowdown in US consumer spending. Consumer cyclical stocks have now fallen almost as much as financials.