Investor/An insider's guide to the market: After such a strong performance from virtually all asset classes in 2005, the question at the forefront of most investors' minds is likely to be whether the good times can continue into 2006.

For those investors that are focused on Irish assets the prospects continue to look good with the Irish economy maintaining an above average annual real rate of growth of 5 per cent.

In addition to the strong underlying fundamentals there is an added stimulus to come from the SSIA pool of funds set to mature between May 2006 and May 2007. The magnitude of the stimulus to consumer demand is impossible to predict as it depends on whether individuals spend or save their SSIA funds.

One sector of the stock market that seems certain to benefit is the financial sector since the demand for financial products will receive a boost irrespective of whether the funds are spent or recycled into other savings and investment products.

Of course the outlook for Irish investment assets, and in particular the Irish equity market, is heavily dependent on global developments. In 2005, global economic conditions were uniquely favourable.

In the developed world the US led the way again registering another year of strong economic growth. During 2005 Japan seemed to finally emerge from a long period of stagnation.

Although growth in Europe remained sub-par, there were signs towards year-end that the larger Continental economies had moved on to a slightly faster growth trajectory. In the less developed world China maintained its astounding rate of growth of approximately 10 per cent per annum. Many other emerging economies in both Asia and Latin America also did well.

This forward growth momentum seems certain to be maintained into the early months of 2006. Indeed the global growth prospects for 2006 as a whole look positive. The key risk to this optimistic scenario continues to reside in some key global financial imbalances. Chief amongst these is the persistence of the enormous US trade deficit.

Associated with this deficit is the extremely low savings rate of US consumers and the growing Federal deficit. So far non-US investors and governments have funded the trade deficit through the purchase of US bonds and other US securities. Such a large annual deficit cannot continue indefinitely, but it can persist for a long period of time and as long as the rest of the world is prepared to purchase US assets and/or lend funds to US entities, then the deficit is not a problem.

Indeed, there is a positive side to the deficit since it means that demand from American consumers is fuelling production in the rest of the world. Therefore, this large international trade imbalance will only become a problem if the US has difficulty in funding it.

So far the global financial system has comfortably coped with this funding requirement and Investor sees little reason why this should change in 2006.

One of the most important supports to this current rosy economic and financial scenario remains low global inflation. Low and stable inflation is a prerequisite for a favourable environment for business and trade. Furthermore, the long period of sustained low rates of inflation that we have enjoyed has led to a significant lowering of long-term inflationary expectations.

In the financial markets this has manifested itself in historically low bond yields. Despite the sharp rise in commodity prices in 2005, bond yields globally have remained low.

An upward shift in current low inflationary expectations would be very negative for the financial market outlook. Higher inflationary expectations would have a seriously negative impact on bond and equity markets. Higher inflationary expectations would quickly feed through to higher bond yields, which would in turn lead to falls in equity and property markets. Investor believes that the risk of this occurring in 2006 is extremely low. This is because the forces that are exerting downward pressure on inflation are long-term and powerful. Globally, the emergence of China as a source of low cost production will exert downward pressure on the prices of manufactured goods for years to come.

At the same time India is emerging as a supplier of low cost and skilled labour to an increasingly mobile services sector. Closer to home the accession of several Eastern European countries to the EU is providing a source of low cost and often highly skilled labour to the rest of Europe.

Investor takes the view that inflation could surprise on the downside in 2006 rather than on the upside. The monetary policies being pursued by the industrialised nations central banks suggest that they are very relaxed regarding the inflation threat. For example, the G7 countries weighted average short-term interest rate is still only 3 per cent and as such G7 monetary policy is geared more towards sustaining economic growth rather than reining in future inflation.

Overall, the global and domestic prospects point towards another good year for Irish investment markets in 2006.