Personal Finance: Brian Tora column

I FEEL spoilt for choice this week. Should I reflect on the launch of the new European currency or the return of "irrational exuberance" to stockmarkets? Perhaps I had better deal with both.

The stockmarket generally rises in the first weeks of the new year. Heaven knows why. In December, a buoyant market is put down to the "Santa Claus" effect, which, in reality, is fund managers carrying out housekeeping before the year end.

January is meant to be more considered, but markets tend to rise on average, as fund managers position themselves for the year ahead. The surge this week was attributed to US managers cutting back the cash piles built up during trickier times.

Did I hear someone mention horses, stable doors and bolts? It feels that way. What is more, technology stocks are again sucking in cash. The price/earnings multiple on the Dow is now close to 40, and no thinking fund manager with a sense of history can put their hand on their heart and say this does not leave the market highly vulnerable. If it goes on like this, when the correction comes, it will be swift and dramatic.

At least the euro got off to a cracking start. There must be a few who wonder why the Square Mile put in so much effort, given that we elected to stay on the sidelines. The reality is that the euro is as much a threat as an opportunity. London dominates foreign exchange trading, and could suffer declining volumes as a result of fewer transactions in the base European currencies that will be subsumed into the euro.

Make no mistake, the euro will make a difference. It will aid the competitive edge of European companies. More important, it will level the playing field forexamining the differences between shares in the same industry.

There is an argument for investing in Europe on the basis that it is behind the US and UK in the economic cycle. A stronger argument, in my view, is that there will be some catching up to be done if the euro is seen to work, and European companies start to be rated against their US counterparts. The demand for European shares - and for European funds - could be strong.

This pre-supposes that the single currency works, which is not guaranteed. We did not stay out just to be bloody minded, and it is too easy to be lulled by the euphoria of a successful launch into believing that all the ducks will swim neatly into a row. Europe is not a single economic entity yet, and taxation, cultural and bureaucratic differences may yet throw strains upon the system.

However, there is much money and prestige riding upon the successful delivery of EMU. If it does all go according to plan, then we will not be talking about Europe as a part of the geographic asset diversification of a portfolio. As Europeans living in Europe, we will be investing in European shares, perhaps buying European theme funds to gain exposure to particular industries. Investors who want to be ahead of the game should think about starting now.

Brian Tora is chairman of the Greig Middleton investment strategy committee

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