Based on signs of growth in Japan and the rest of Asia and from climbing commodity prices, investors had recently bought shares in "cyclicals". That's made the FT-SE 350's mining index its best performer so far this year. Now the US is talking about raising interest rates, some investors are starting to have second thoughts.
"If you are beginning to get a few interest rate rises, then the move towards cyclical stocks diminishes, and you would go back to a play on growth stocks again," said John Cornes, manager at Taylor Young Investment Management.
The UK's benchmark FT-SE 100 index fell 1.4 per cent last week, closing at 6,435.4 on Friday. Lloyds TSB led banks lower, down 5.9 per cent, as the threat of higher US rates pushed US bond yields to 19-month highs. Banks were hit as they hold a lot of bonds in their portfolios.
Commodity prices have climbed this year on hopes for growing demand. Aluminum is up 10.6 per cent and copper climbed as much as 8.2 per cent, though up just 1.8 per cent on the year in recent trading. That's boosted metal companies: Billiton, which makes half its income from aluminum, was the best performer on the FT-SE 100, up 76 per cent.
Still, investors are questioning the pick-up in global growth. "The global environment is not one of synchronised growth," said Richard Buxton at Baring Asset Management. "There are other areas of the world that are still fraught with difficulty: we see global GDP growing below trend." He said that moves into commodity companies based on "a belief in a sharp V-shaped recovery and greater pricing power" may prove "premature".
Mr Cornes said he's taking advantage of the gains in mining stocks in recent months to sell. "The Billitons and others have been up for sale on the improved prices we've seen in the last six months," he said. "We don't think the primary producers are the right areas to be in."
Investors may turn to telephone companies. "We've taken opportunities on price falls to pick up growth stock," said Mr Cornes. "We're particularly interested in the telephone sector."Reuse content