For Europe and America the first year of the new millennium was characterised by a continuation of very favourable economic conditions. In the US, economic growth kept up a blistering pace driven by a revolution in productivity, while in Europe a strong if less spectacular economic recovery took firm hold. Despite rapid growth, inflation throughout the world has remained subdued.

Yet the impression created by the performance of leading stock exchange indices belies this rosy economic performance. US markets in particular have declined sharply this year and the once high-flying Nasdaq index has now declined by well in excess of 50 per cent from the peak that it reached as recently as March 2000.

There is little doubt that irrational exuberance brought technology, media and telecom (TMT) share prices to unsustainable levels and that a sharp decline at some stage was inevitable.

However, the recent spate of profit declines and warnings about deteriorating business conditions across a broad spectrum of companies points to something more fundamental. It now seems clear that the US economy has reached a turning point and that the pace of economic growth is slowing quite sharply.

The speed and the extent of this slowdown will be the key underlying fundamental factor influencing global stock markets throughout 2001. Slowing US corporate profits, lower US interest rates and possibly a weaker US dollar are the consequences of this economic slowdown.

In such an environment will "new economy" growth stocks outperform the long-established industrial and financial stocks? In the early part of 2000 it must have seemed to many that there really was a fundamental dichotomy between the "new" and "old" economies.

Many young technology companies, short on actual revenue and profits but long on future growth promises, were achieving enormous market capitalisations. The other side of this coin was a contraction in the valuations of long-established financial and industrial companies.

For investors, 2001 presents a challenging environment where the risks of a US economic recession now seem quite real. However, the huge swings in investor sentiment over recent months and years have created several potentially rewarding investment opportunities.

On one hand, large high-tech US companies have seen their share prices plummet to what could prove to be rewarding buying levels. On the other hand, many "old economy" shares are still trading on very low valuations.

The first accompanying table lists a selection of US high-technology companies whose shares are trading well below their peak levels, while the second provides a shortlist of small Irish companies that seem to offer extremely good investment value.

Even though the high-tech stocks are trading well below their peaks, any decision to invest now is finely balanced. Long-term growth prospects for the TMT sectors are high but the short-term profit picture is extremely uncertain. On balance some selective investment in US high-tech shares during this bout of weakness seems like a risk worth taking.

In sharp contrast the "old economy" shares listed in the second table look like a haven of tranquillity. During 2000 all of these shares have increased in value following a period of dull performance. Their stock market ratings have suffered from the pervasive lack of investor interest in small companies over recent years.

However, the profit outlook for all of these companies is very favourable and all of the companies listed have an enviable long-term track record of profit growth. With the exception of DCC these shares are trading on prospective price-earnings ratios of less than 10.

The early omens are that 2001 is going to be a year of transition for the world economy and the recent high levels of stock market volatility seem set to continue. While the high-risk technology sectors will throw up some inviting investment opportunities, it could well be that 2001 will see the return to favour of the previously unfashionable "old economy" sectors of stock markets.