Last month's Financial Times dubbed it the Tigger rally. The 8.3% jump in the FTSE100 on 12 October was followed by the Dow Jones Industrial Average climbing 11.1% and the Nikkei 225 more than 14%. These were the biggest-ever daily gains for Japan and the US and the second-biggest jump in the UK's main market index in its 24-year history. As the pink 'un noted, markets have been as bouncy as Winnie the Pooh's ever-­ebullient feline friend.

We are introduced to Tigger in the second chapter of ‘The House at Pooh Corner'. In it the characters search for something for him to eat for breakfast. After several false starts (including honey, acorns and thistles) Tigger finds that extract of malt will keep him bouncing. Markets are more complex. Good news is welcomed, but to sustain rallies they need confidence and the participation of long-term institutional investors. As of the middle of October these investors remained on the sidelines.

The regime map used by State Street Global Markets' strategy teams as a pictorial guide to investor behaviour and the pattern of cross-border equity flows is typically generated at the start of each month. Given the extraordinary volatility of markets it was re-run in mid-month. The regime shifted to riot point, the most risk-averse of all. Whereas safety first sees institutional investors favouring the safe haven of developed equity markets over emerging and is broadly consistent with repatriation, riot point is characterised by the wholesale selling of equities and other risk assets.

Riot point is so called because investors are figuratively out on the streets demanding a policy response. This has come in spades. The UK has pledged £400bn (€512bn) to the financial system in the form of loan guarantees and bank recapitalisations. Continental European nations, including France and Germany, have announced state support to the tune of a jaw-dropping €1.3trn. The $700bn (€519bn) US TARP (Troubled Asset Relief Program) has also transfigured. It will be left to Fannie Mae and Freddie Mac to buy troubled Alt-A and sub-prime mortgage assets while the Treasury works on injecting capital into banks.

Policy has certainly shifted regime. But will the new prescription work like extract of malt on a Tigger and keep markets bouncy? It might, but only if flows also recover. Previous rallies have proved false dawns. During July and August markets staged a modest recovery, but institutional investors stuck doggedly to their safety first stance. That proved to be prescient. Prior to the recent rally the FTSE100 fell a further 23%.

So far there is no sign from flows that sentiment is improving. Since Lehman Brothers became the biggest corporate bankruptcy in history on 15 September, flows have deteriorated from already low levels. On that fateful day, one-month cross-border developed market equity flows stood in the third percentile. They have since fallen to close to a record low (one month flows have been higher on 99.9% of previous monthly time periods in the 11-year history of the cross-border equity flow indicator). Aggregate emerging flows are at their weakest since the apogee of the Asian crisis in September 1997.

The sharp deterioration of emerging market flows shows just how virulent the financial market contagion has become. Even as late as the Lehman bankruptcy, aggregate emerging market flows were above their long run median. Any pretence that emerging markets enjoy a safe haven status has since been blown away.

Although banks in emerging markets have generally dodged toxic structured products, the macroeconomic backdrop is not helpful. Those countries with high balance of payments deficits and large amounts of private sector debt compared with GDP (the poisonous brew that caused Iceland to succumb) can expect particular scrutiny.

As the financial crisis eases, it is inevitable that the attention will once more turn to the real economy. It is hard to find much cause for optimism.

Forward indicators across the G7 are pointing to a recession. The only topic open to debate is how deep the slowdown will be and how long it will last. The cycles of credit rationing feeding through to weaker economic activity and falling consumption leading to lower employment will be hard to stop now they have started.

Against this backdrop it is hard to see risk appetite bouncing back as quickly as some markets suggest it might. Following the 2000-01 US recession, a plain vanilla cyclical downturn without some of the nastier characteristics of the current credit crunch, investors remained gloomy. In the 12 months following the official onset of the US recession in March 2001, four months were spent in Riot Point and six in safety first. After all the recent tumult, sentiment seems unlikely to snap back quickly. As AA Milne reminds us in ‘Pooh's Little Instruction Book': "Rivers know this: there is no hurry. We shall get there some day."