Chris Carter of UBS agreed, saying that the bank's global valuation model suggested a world-wide overvaluation of 10 per cent. "The same model generates a 35 per cent over-valuation for 1987," he said.
The strategists pointed to important differences. In 1987, according to UBS, inflation was rising and bond yields heading upwards, signs that markets should fall, whereas in 1997 the reverse is the case.
Another important factor is the supply of equities, which was far higher in 1987 than now. "In 1987, 65 per cent of turnovers were financed by paper, as opposed to around 15 per cent now", said Philip Wolstencroft of Merrill Lynch. Mr Hughes of BZW attributes at least some of the dramatic price response in 1987 to the fact that futures and options were then traded amongst a small group of professional traders. "Today there is a better balance in the market".
The City's experts think a substantial correction is more likely in the US than the UK. "The US is an accident waiting to happen", said Nick Knight of Nomura. The UK may well follow suit but any correction here is unlikely to be as dramatic.