Investor/An Insider's guide to the market: It is five years since the peak of the bubble in technology stocks. Just over five years ago, "old economy" stocks with billions in revenues were being ejected from major indices such as the FTSE 100 to make way for "new economy" firms such as Baltimore Technologies.

At the time, it seemed that anyone with a concept that involved the internet or technology could sell shares on to the stock market at inflated prices. Once the bubble burst, shares of many tech firms had a long way to fall and many went bankrupt.

Although share prices have rallied strongly over the past two years, the prices of most tech stocks are still well below the heights reached at the market peak. In the US, the Nasdaq is trading at just over 2,000 - 60 per cent below its peak level of over 5,000.

In contrast, the ISEQ Overall index recently broke through its previous peak, although the collapse in Elan has pulled it back somewhat. The broadly-based S&P 500 index is just 20 per cent below its bubble peak.

Ironically, the past five years have witnessed a widespread increase in the use of technology by consumers. Low-cost airlines make the bulk of their sales over the internet, while the flag carriers are also increasing their utilisation of the internet. Supermarkets offer online shopping and many consumers are comfortable making a wide array of purchases online, from buying CDs to booking theatre tickets.

Some tech firms have done well over the past five years but it has tended to be the larger, more established companies that have benefited.

The top five US companies - Microsoft, IBM, Cisco, Intel and Dell - have, on average, grown their earnings per share by 50 per cent. However, the share prices of these firms are still well below the peaks reached in 2000.

IBM and Dell have fared relatively well and their share prices are only about 20 per cent below prices at the start of 2000. Cisco's shares, however, are down about 70 per cent over the same period.

Not surprisingly, investors have become much more sceptical about awarding high price-earnings ratios (PERs) to companies with perceived strong long-term growth prospects.

One of the few UK winners in the software sector is Sage, which is still in the FTSE 100. Its shares once traded on a PER of more than 100, whereas now they trade on a PER of 20.

This pattern of the derating of growth and large-capitalisation stocks has been a feature of global markets since the tech bubble burst. Value stocks - typically those paying good dividends - and mid- and small-cap stocks have been very much in favour.

A comparison between the FTSE 100 and the FTSE 250 in the UK exemplifies this. The latter index consists of mid-caps and has recently been hitting all-time highs. In contrast, the large-cap FTSE 100 is trading well below its peak of 6,930 five years ago.

These divergent trends between growth and value stocks and small and large stocks have also manifested themselves in the better performance of many smaller stock markets. The Irish market is a case in point, where it has a preponderance of high-yielding financial stocks and smaller industrial companies.

Typically, high-growth stocks trade on PERs that are much higher than those pertaining to slowly growing firms.

The divergent trends of the past five years have brought a dramatic compression in these relative valuations. Traditional value stocks tend to be cyclical and to have high dividend yields. Strong global economic growth has boosted the share prices of cyclical stocks and many are trading on PERs that are close to market averages.

Several analysts argue that this compression in relative valuations has gone too far. Companies with better growth prospects should be rated more highly.

If economic growth slows, investors are likely to switch out of cyclical stocks and into growth stocks. Of course, the key question is what growth stocks should investors target.

Sectors such as technology and pharmaceuticals are often viewed as growth sectors. However, memories of the bear market are still fresh and investors are unlikely to indiscriminately purchase technology stocks.

Likewise, there are a lot of questions regarding the growth prospects of pharmaceutical stocks. Several high-profile drug withdrawals, exemplified on the Irish market with the problems surrounding Elan's Tysabri, means that investors are much slower to take on trust forecasts of rapid growth from new drugs.

What seems to be emerging is that those analysts recommending a switch towards growth are stressing the importance of focusing on specific stocks rather than industrial sectors. Therefore, Vodafone in the telecoms sector and Northern Rock in the financial sector are considered by some analysts to be growth companies.

The implications for the Irish equity market of this potential switch in sentiment away from value and towards growth is by no means clear cut. If there was a renewed widespread re-rating of tech firms, the Irish market would underperform. If, as seems more likely, investors seek out growth on a stock-specific basis, the Irish market could well hold its own.

In particular, the buoyant Irish economy is enabling many Irish-quoted companies to grow their revenues at a faster pace than many overseas firms. Therefore, as long as the Irish economy continues to perform, the Irish equity market should be able to cope with a shift in global investor interest towards growth stocks.