IN MARCH, there was a stench of fear in the air, as the share price of banking giant HSBC Holdings crashed an astounding 24 per cent in a day.
Those fortunate enough to pick up the badly bruised stock on that day are now laughing their way to the bank.
With the stock trading at HK$82.55 (S$15.25), HSBC has shot up a spectacular 150 per cent from a low of HK$33 on March 9, after raising US$17.7 billion from a rights issue to shore up its capital base.
The buoyancy in HSBC's shares is also giving a boost to other regional lenders like DBS Group Holdings and United Overseas Bank – now trading at 12-month highs.
Investors can be forgiven for wondering if there was a near cataclysmic collapse in the global banking system at all, after the failure of US investment bank Lehman Brothers last September.
August had kicked off to a good start yesterday, with bourses across the globe all registering gains as the good news on corporate earnings continued to pour in from companies across the board.
It is time for the bears to concede defeat, as the flow of liquidity is so powerful that it propels stock prices higher after each correction.
One market watcher has likened the current rally to the froth generated by churning a cup of cappuccino.
The more milk you pour into the cup and the more furiously you stir, the more froth you generate, he observes.
Eventually, things must settle down but for the moment, there is so much churning of blue-chips by the funds returning to the region that the market is likely to get more frothy going forward.
What is fuelling the run-up is the ability of these funds to borrow at next-to-zero interest costs in US dollar to punt regional markets.
And with the greenback weakening against all major regional currencies, they also stand to make a bundle from foreign exchange gains as well.
This is a scenario which is similar to that experienced in Japan when it slashed interest rates to zero to fight deflationary pressures a decade ago.
The end-result was a multi-billion dollar yen carry trade, as traders borrowed in the low interest yielding Japanese currency to make huge bets in emerging stock markets.
With the Fed also slashing interest rates to almost zero, the greenback has replaced the yen as the new carry trade currency.