Serious Money: Like many other European stock market indices, the UK FTSE 100 and the FTSE All-Share currently stand at four-year highs. Although still 12 per cent below the peak reached five years ago, British equities have staged an impressive 61 per cent rally in the two and a half years since the lows reached in March 2003.

Anyone who still believes in the efficiency of financial markets should ponder not just the boom and bust period around the turn of the century but also the factors that have caused the value of the UK corporate sector to rise by nearly two-thirds in a very short space of time.

Once we drill down to the sector and stock level, we can only sit back and marvel at how much money could have been made - or lost - by investors over the past couple of years.

Just looking at 2005, anyone with perfect foresight could have made nearly 40 per cent by placing a bet on the basket of stocks comprising the mining sector.

Companies like Anglo American, Xstrata, Antofagasta and BHP Billiton have been truly stellar performers.

Efficient markets are supposed to always and everywhere reflect all available information in a stock price. What has changed over the past nine months that these companies are now worth orders of magnitude more than they were before?

The idea that commodity producers are in a "sweet spot", whereby increasing demand from booming economies like the US and China is not being matched by increases in supply, is hardly novel.

Modesty does not prevent Serious Money from pointing out that we first discussed BHP, for example, when it was around 65 per cent lower than it is today.

But mining is, admittedly, a notoriously volatile part of the stock market, and, say many investors, it is so small that it hardly counts. At 4.8 per cent of total UK market capitalisation, it is bigger than it was and many people will be surprised to learn that it is now the fifth largest sector, ahead of more familiar sectors like media, insurance and retailing.

Oil and gas, of course, is the heavyweight sector that has also shot the lights out. Investors in the UK - or any other market - really needed to get this right as it now accounts for 18 per cent of the All-Share (and even more of the FTSE 100). Shell's decision to transfer all of its listing to London is part of the reason for this, but continued outperformance has also helped.

The sector is up a whopping 35 per cent year-to-date. Again, the idea that oil prices might be a bit higher than we are used to was hardly a novel one at the start of this year.

Another reason to doubt the efficiency of markets is the regularity with which tobacco stocks outperform. There may well be something ethically irresponsible about investing in tobacco companies but the sector in Europe has been the best performer over the past three decades and is up a very, er, healthy 21 per cent year-to-date.

The not very socially responsible investor should always have one or two tobacco stocks in his portfolio.

At the other end of the scale, we might have been tempted to think at the start of the year that retailing was not going to be a particularly strong performer.

There were plenty of signs that the housing market - always a good lead indicator for consumer spending - was weak and that competition continues to weigh on margins. General retail now stands second from last in the performance league table.

If the overall market has been strong, just imagine how much better things would be looking if the second largest sector - banks - had done well. UK banks have been abysmal performers this year, down about 1 per cent as a group. This sector accounts for around 17 per cent of market capitalisation and has, therefore, been a big drag on the market.

Bank share prices depend on a complex array of factors. The loan cycle, bad debts, lending margins and cost control all play significant roles. UK lending growth is slowing (that housing market again) and bad debts are rising (mostly credit cards - that weakening consumer again).

A slightly more esoteric driver of bank share prices is the efficiency, or otherwise, with which they are going to deploy surplus capital.

British banks, some of them at least, have more money than they know what to do with and the fear is that they will blow their surplus capital on inappropriate acquisitions.

Not much has gone right on any of these factors and there is little light at the end of the tunnel.

While UK bank valuations now more appropriately reflect the balance of risks that these businesses face, I would expect underperformance to persist for a long time to come, given that it is difficult to see lending growth or margins getting better for the foreseeable future.

For the UK equity market to make much more progress, therefore, we need to see the existing pattern of leadership persist.

Oils and commodity-related stocks will have to keep up the running.

Having slated the markets for not being able to see the likelihood that these stocks would be the stars of 2005 (so far at least), Serious Money should now offer up its own hostage to fortune.

With the OECD now saying that China will grow faster in 2006 than 2005 and Japan showing signs of rejoining the world economy for the first time since the 1980s, it must be a good bet that demand for energy and commodities is likely to be remain a tad buoyant.

Chris Johns is an investment strategist with Collins Stewart. All opinions are personal.