The Irish equity market is typical of many smaller markets as regards having a very limited sectoral composition. The Irish index is dominated by financial shares and mature industrial companies such as CRH and Smurfit and offers investors very limited choices in important sectors such as pharmaceuticals, technology, and resources.

While the Irish resource sector includes in excess of 20 companies, the vast majority are tiny operations with market capitalisations of less then £5 million (€6.35 million) in some cases. Even the larger listed Irish companies such as Tullow Oil and Navan Resources have market capitalisations that are barely in excess of £100 million.

All of the resource stocks listed on the Irish exchange are extremely speculative investments. Indeed, the history of the Irish resources sector is chequered and very few companies have managed to deliver on their early promises.

In contrast, the resources sector in the larger stock markets is dominated by the giant integrated oil companies such as Royal Dutch Shell, BP/Amoco, Exxon and Elf Aquitaine. The share prices of these companies have been performing extremely well so far this year. For example, the oil-and-gas sector of the FT All-Share Index, which includes the major oil companies, has risen by more than 40 per cent over the last 12 months. The recovery in the oil price has been a major factor in this shift in sentiment in favour of resources based on stocks.

Of equal significance has been the spate of mega-mergers and takeovers in the sector. BP acquired Amoco earlier this year and more recently Total has succeeded in acquiring the French company, Elf Aquitaine. This spate of corporate activity in the oil and other resources sectors, combined with rising commodity prices has led to sharp bounces in the share prices of the majority of exploration companies.

The table highlights just how strong the market in these shares has been so far this year. The FT Extractive Industries Sector has risen by more than 75 per cent in the year to date, whilst the rise in the exploration and production sector has been a more modest 35 per cent. Only the gold sector has remained in the doldrums as the price of gold continued to weaken due to sales of gold by central banks.

The smaller Irish companies have begun to benefit from the improved sentiment towards resources companies. For example, the Davy Resources Index has risen by almost 25 per cent this year compared with a decline for the overall market. In recent days some of the smaller companies such as Dana Petroleum have risen sharply. It is likely that the more positive sentiment towards oil and resource stocks will continue to spill over into some sharp rises in some of the companies listed on the Irish market.

However, given the highly speculative nature of the majority of these shares, the share price performance of each individual company will depend far more on developments that are specific to each stock.

History has shown that it has always paid to tread very carefully in the Irish resources sector. Despite the better overall climate, investors considering investing in the sector should keep its chequered past to the forefront of their investment decisions.