The global economy is without any doubt in a better state than it was twelve months ago. If leading economic forecasters prove true to their word, 2010 should see economies worldwide put in a better performance than last year, and 2011 should again see further improvement.

Yet risk assets worldwide have started the new calendar year in a fashion not witnessed since early 2009. Risk appetite is clearly retreating, albeit admittedly from elevated levels.

Some experts believe we are once again on our way to a new bubble, but that's certainly not a view shared by the majority. Most stockbrokers and market commentators have been telling investors this is the pullback that refreshes, and buying opportunities should be jumped upon for maximum benefits in the future.

But if economies are improving, and corporate profits are back on the rise (with balance sheets repaired), why are risk assets retreating? Surely, if softer markets were opening up buying opportunities, more money would be flowing in the markets instead of out?

Well, there are doubts. Doubts whether less liquidity and more restrictions (such as for banks) in combination with less stimulus might push back major economies towards dismal growth, if not worse.

As such, the current dispersion in market views can be grosso modo put down to those who believe that global economies will continue improving from here, albeit maybe not in a straight line, and those who believe the global economic recovery is but a phantom and sooner rather than later we will all find out: the Emperor hath no clothes on.

Nobody, or so it seems, is at present considering a third scenario: one that sees the global economic recovery strengthening and at the same time risk assets, such as equities and commodities, underperform their potential.

Is such a scenario possible, I hear you ask? Well, as a matter of fact we did experience such a year not that long ago, and if anything, the similarities with markets today are striking, to say the least.

Let's travel back to 1994. At the time, the US was climbing out of the trough of a financial crisis caused by too loose lending practices and too much property speculation gone wrong. The US government had to bail out many banks and the Federal Reserve had kept interest rates at what were back then historically low levels (3%) for an extended amount of time to allow banks to repair balance sheets and become profitable again.

Sound familiar? Wait till you read the next paragraphs.

After an initially deep correction, share markets and commodities had put in a big rally throughout 1993, ending the year on a high; the share market return in Australia throughout 1993 was 36% (about the same as in 2009).

Price-Earnings ratios were above normal, commodity prices had rallied in a big manner too.

Risk appetite was at elevated levels. Consider, for instance, equity markets in Asia (ex Japan) were up 85%. Some markets, such as in Hong Kong, were up 120% over the year.

In the US, house prices hit their low point in 1991, but they did not start rising again until mid-1994. US interest rates had been kept at 3% since 1992 - for that time an unusually low level, and for such a long time.

And the US dollar? By late 1993, the US dollar was at the end of an eight-year long bear cycle, having depreciated by 38% since peaking in 1985. Today, the USD has fallen about 36% from its March 2002 peak (that's about eight years too).

Leading economic indicators going into 1994 were strong. Prices for commodities had rallied. Equity valuations for resources companies saw their PE-multiple increasing by over 10 points (again; similar to what happened last year). As the US dollar was still in a down-trend, gold performed well, the gold price gaining 18% over 1993 (last year gold surged nearly 30%).

Interest rates were low, but they would rise soon. Inflation was benign. The talk among investors and economists was all about a "jobless recovery" in the US. Overall confidence was high. The Governor of the Reserve Bank of Australia gave a speech titled "Australia - Ten Reasons For Confidence" and, according to analysts at Citi, those ten reasons included:

- a domestic economic recovery is under way

- the world economy will recover

- inflation is under control and will remain so

Yet, 1994 turned out the worst year of the decade for the Australian share market. Share prices peaked by late January 1994 (about two weeks later than this year) and subsequently declined, and declined, paused, put in a few botched rallies, traded side-ways throughout mid-year and subsequently declined further during the final quarter.

There was no Christmas rally in 1994 and by early 1995 the Australian share market was 10% below its level at the end of 1993. Luckily, for investors with a longer term horizon, from January 1995 onwards share markets started rising again, and they did so for multiple years thereafter.

Only one sector managed to put in a positive return in 1994: insurance companies. Diversified resources outperformed the share market, but they still yielded a negative return for the year.

Gold, media and healthcare stocks were the worst performers that year in the Australian share market.

Australian bonds, similar to their international peers, had a horrible year, with yields rising steep and fast. (The Fed was moving from highly accommodative into tightening mode).

Of course, apart from all these similarities, there are also plenty of differences. Back then, for example, China was not of similar importance, but neither had the crisis been as deep as in 2008-early 2009.

And many experts believe the Federal Reserve won't be in a position to start raising interest rates this year; instead China and India have already started tightening.

Around mid-year in 1994 the economic recovery experienced a dip. We have yet to see whether this will prove to be another similarity this time around.

Bottom line is: financial assets do not always follow the same route as economic indicators. There are plenty of other factors that can dominate 2010's overall trends and performances.

Investors should not automatically assume that, because economies are now on a firmer footing than prior to March last year, prices for commodities and shares should thus put in a good performance this year as well.

1994 has shown this will not necessarily be the case.

Investors should note: the past never provides an exact blue print for the future.