It is barely more than six weeks since the Irish stock market hit its low point for the year of 3,723 in early October. At the time of writing, the index had risen by in excess of 1,000 points with further gains in sight. As always the recovery in the Irish market reflects international trends and indeed the Dow Jones index has now climbed above its July 1998 peak.

Coming with this resurgence in investor confidence has been an explosion in major mergers and acquisitions. Germany's Deutsche Bank is in discussions regarding a $10 billion (£6.8 billion) takeover of Bankers Trust in America. GRE/PMPA's parent company, Guardian Royal Exchange has put itself up for sale with a price tag in excess of £3 billion sterling (£3.41 billion).

In the Irish market, Irish Life and Irish Permanent seem close to finalising the merger of the two companies. While many of the major merger and acquisition deals have been in the financial sector, other sectors are also seeing substantial activity. Two of Britain's largest engineering companies, Siebe and BTR, have announced a merger to create a company valued at more than £9 billion sterling.

Irish private investors have long favoured investing heavily in Irish financial stocks. Despite the gyrations of this year's stock market, the performance of Irish financials has been very strong. Profits have continued to benefit from the buoyancy of the Irish economy and corporate activity has provided a further boost.

Further substantial corporate activity is assured in the Irish financial sector. In two or three years time the quoted sector will almost certainly look very different. Leaving aside the possibility of an overseas player seeking to become involved in the Irish market place, there is ample scope for merger and acquisition activity among the existing companies.

Assuming the Irish Life/Irish Permanent merger is consummated, it will radically alter the financial landscape. From the investor's viewpoint it does reduce the range of choice in the market in that there will no longer be a pure life insurance company quoted on the market.

On the other hand Irish Life and Irish Permanent combined will provide a bank-assurance company whose business is primarily focused on the booming Irish economy.

Of the remaining Irish-quoted financials, no less than three look like candidates for merger and/or acquisition. There have been long-running rumours regarding the eventual fate of Hibernian Insurance where the giant British insurer CGU holds a large stake. With the British life sector rapidly consolidating, it is difficult to see Hibernian remaining as an independent company over the long term.

Anglo Irish Bank is often treated as a likely takeover target. Given its relatively small size, with a market capitalisation of only one twentieth that of AIB, it is clearly too small to take on the industry giants. However, given its niche position in the market-place it is not obvious who would find it attractive.

While First Active is protected from takeover for five years, it does look too small to remain independent over the long term. In the unquoted financial sector, there is likely to be even more corporate activity. The Government wants to privatise ICC, ACC and the TSB. National Irish Bank's Australian parent is unlikely to want to remain committed to the Irish market given its problems over the past year. Irish Nationwide Building Society has long expressed its desire to merge with another financial institution.

From the private investor's perspective all of this corporate activity is something of a double-edged sword. On the plus side it will be a factor underpinning share prices. However, the negative side is that investment choice will decline as the quoted sector becomes dominated by a smaller number of larger players. In the meantime the message seems to be to hold onto those financial shares.