"Sell in May and go away" is a well-worn stock market adage which has little basis in reality. Historical studies of stock market returns have shown that equity share prices are just as likely to rise as to fall over the long summer months. Nevertheless, the drab performance of most stock markets during May does raise concerns about whether the long running bull market in shares is finally running out of steam.

As the table shows, equity prices declined sharply during May although the year-to-date returns in most markets still show some healthy rises. Far Eastern markets have been particularly strong although it must be remembered that they are coming off a very low base.

The US and European markets were generally very weak in May, but are still showing quite healthy returns in the year-to-date. In Europe, the laggard amongst the larger markets has been Germany where the economy has been unable to meet the more optimistic projections of a steady improvement in the growth rate during 1999.

The Irish market has underperformed quite sharply this year and is now below the level at which it finished in 1998. This is a particularly disappointing return against the backdrop of a still booming domestic economy and an environment where Irish-quoted companies have been reporting very strong profits growth virtually without exception.

Part of the reason for this under-performance of the Irish market can be found in the sectoral make-up of the ISEQ. Financial stocks represent about 40 per cent of the index and the share prices of Irish bank and insurance stocks have declined so far this year.

In part this reflects a global trend where investors have been shifting funds out of financial and high-growth stocks into industrial and resource based shares. This shift in investor sentiment was particularly evident in May and the bank sector in markets such as the US and Britain experienced declines of the order of 10 per cent. Likewise, Irish banks declined by about 10 per cent in May, but unlike their international counterparts, the share prices of Irish banks were also weak in the early part of the year.

There is no doubt that part of the current weakness in Irish bank shares is due to some very negative comment surrounding the mooted merger between Bank of Ireland and the Alliance & Leicester. However, this would seem to be only a small part of the explanation and the underlying causes would seem to be twofold.

Firstly, there has been a good deal of comment recently questioning the sustainability of the Irish economic miracle and, in particular, the prospects of a collapse in the property market.

Secondly, there is a suspicion that Irish institutions are continuing to rebalance their equity portfolios towards a more pan-European model and are therefore continuing to reduce the Irish equity content of their portfolios.

Regarding the former, some slowdown in the current pace of Irish economic growth would seem to be inevitable, but talk of a sharp downturn over the next two years would seem to be well wide of the mark. As for the latter, if Irish institutions are sellers of Irish equities it will certainly depress prices in the short term, but over the longer term it is the growth in profits and dividends that really counts.

In this regard the prospects for Irish financial stocks still look good over the next few years and therefore the current weakness could well prove to be a good buying opportunity.