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So what's happening? One research house suggests that stock markets are rising because of the liquidity governments are injecting into financial systems as part of their economic stimulus packages. In other words, there's a misallocation of funds.

Given this bear-market rally, which has seen Asian markets rise by 30 per cent on average since March, domestic investors have also leapt on the bandwagon.

"Why loan your savings to the US government for four years at a 10-per-cent return, when you can make that much on Asian stocks in a week?"

"Why put your money in a one-year time deposit when it yields less than CPI inflation?" said the researchers.

At this stage, markets are only reacting to the liquidity, rather than the future, which remains highly challenging given the depth of economic and financial crises in major economies, especially the US.

As long as governments around the world continue spending huge amounts of public funds as part of economic stimulus packages and the "happy hour" at the central banks' bar continues, no one will care about the consequences.

However, today's buyers are advised to exercise extra caution if they think Asian markets will continue rising.

While the post-1998 and 1999 cases might be valid for Asian markets in the wake of the 1997 economic crisis, the outlook for the global economy is rather different this time around.

Back then, global GDP growth was strong and accelerating, with the world economy growing by 2.7 per cent in 1998, by 3.2 per cent in 1999 and by 4.1 per cent in 2000, thus effectively helping Asian economies recover.

This time, the International Monetary Fund has forecast a contraction of 1.3 per cent for 2009 and only 1.9 per cent growth in 2010.

Another international bank study also suggested that the liquidity-led rally would be short-lived and buyers should sell.

The SET at 500 means the 2009-2010 earnings will grow at an average of 20 per cent per annum. In other words, there will be a V-shaped economic recovery based on this scenario of earnings forecasts.

This is highly unlikely, given that what we've seen so far is just some signs of economic stabilisation in the US, not any kind of solid recovery.

For Thai stocks, the market consensus for 2009-2010 earnings growth is currently 0-15 per cent, so the SET's rise beyond 500 is somewhat beyond the fundamentals.

While ample liquidity is positive, the market remains vulnerable to a deeper growth contraction, further delay in public-investment projects and recordlow domestic confidence.

"Only liquidity from high household savings and low corporate debt helps lessen the pain. Improving confidence is critical to allow liquidity transmission through economic activities and growth," the bank's research said.

"The government has so far failed to restore public confidence in terms of both its economic and political agenda, thus leaving domestic activities on a weak path."

In fact, the Thai political risk is still underestimated by the market. While the Abhisit Vejjajiva government has adopted an aggressive fiscal position, it has fallen behind schedule in terms of implementing public-investment schemes.

The recent political turmoil, especially the abrupt cancellation of the Pattaya Asean Summit, has led to more political challenges, thus moving the focus away from public spending to stimulate the economy.

On political reconciliation, there have been no fresh signs of success, and inaction or silence does not bode well for the country either.