A mega-market for Euroland could be the next step

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The Independent Online
THE PROSPECT of a huge European stock market, presumably based in Frankfurt, is fascinating some investment strategists.

By 2005 they see the mish-mash of insignificant Continental markets merged into one. Mark Howdle at Salomon Smith Barney says: "The only market to measure it against will be the US market."

The Salomon man is, of course, assuming economic and monetary union is a success and the euro is alive and well half way through the first decade of the new millennium.

It is possible the UK will be dragged into Euroland by 2005. But Mr Howdle has, probably wisely, assumed the UK is still going it alone and has not included the London stock market in his calculations.

He sees the euro equity market more than doubling in value, merely because of the changes one market, one currency will introduce.

The present fragmentation of European equities "is not doing investors any favours" but the one-market payoff "will be lower transaction costs and greater liquidity - a quantum leap in market efficiency", he says.

The new Eurozone equity market will become increasingly like the US market.

Mr Howdle says: "It sounds like a dream environment for fund managers and investment banks."

The perceived European challenge is one of the reasons put forward by the Stock Exchange for its controversial order-driven trading system.

London could, of course, find life increasingly tough if the eventual European exchange takes the form Mr Howdle anticipates. But there is no reason, while the UK is outside Emu, to suspect it could not continue to flourish. And even following Emu entry it need not be submerged into a monster exchange. London is still streets ahead of Continental exchanges, although the way the London International Financial Futures & Options Exchange has been made to look leaden-footed by its Frankfurt rival should be regarded as a dire warning that complacency is not the way to treat the euro challenge.

It is, however, strange that as strategists ponder the possible arrival of a master euro share market there is an undoubted tendency for small markets to appear. Easdaq and Euro NM have arrived; even little Guernsey is expected to launch its own stock market in September.

The European share industry is also a target for Nasdaq, the successful US operation, which has indicated its expansion plans by spending a fortune on television campaigns on this side of the Atlantic.

It is impossible to forecast just how the World Wide Web and the rest of the communications revolution will influence share trading in the next century. If, as is possible, investors, big and small, will be able to obtain direct access into something resembling an order book system then there would presumably be no need for market makers, or even stockbrokers.

But somehow such a revolutionary development seems little more than a pipe-dream, like the 1950s forecast that by now we should all be travelling around in our own miniature helicopters.

What could - and perhaps should - happen is that share markets should become two-tier affairs, with institutional and private investors each operating in their own environments.

After all, the needs of big investors, trading in millions of pounds, and the small player, thinking in terms of a few thousand pounds, are poles apart. Already a yawning gap has opened up.

While many private investors queue on the telephone to get through to their execution-only broker, institutions can call the tune with regard to dealing facilities and costs, because of their trading muscle.

Computerised settlement, nominee accounts and the extra cost being introduced in some quarters for traditional share certificates are other factors which separate the little 'uns from the mighty battalions.

There is surely an argument for the London market, and the possible market envisaged by Mr Howdle, adopting a formal two-tier structure which at least should prevent small investors getting overwhelmed.

THERE is an aviational look to this week's profits schedule with BAA, the old British Airports Authority, British Airways and Airtours reporting.

BAA should check in with year's figures around pounds 470m against pounds 444m last time. British Airways, where its long-threatened and controversial alliance with American Airlines is beginning to look increasingly remote, should manage pounds 420m, down from pounds 642m. The strong pound and last year's strike have done the damage.

Airtours, the holidays group, will dive deeper into the red, say a pounds 28m loss against pounds 12.7m at the interim stage. It traditionally suffers losses, because of the seasonal nature of its business, in its first half year. Profits for the 12 months should emerge near pounds 140m against pounds 120.3m.

EMI, having escaped from the attentions of the Seagram drinks-to-showbiz group, will display its suffering from the Asian downturn and the strength of sterling. Profits are likely to come out at pounds 310m against pounds 380.5m.

Allders and Thorn rental group keep the retail results flag flying. The department store chain's interim figures will be unexciting, say pounds 16.4m against pounds 16m. Thorn's profits, around pounds 115m against pounds 164.3m, could be overshadowed by takeover developments; the group has said a bidder hovers.

Two of the more traditional regional brewers also contribute to the week's activities. Scotland's largest independent, Belhaven Brewery, is seen as making a 25 per cent gain to pounds 4.95m and Fuller Smith & Turner, the family-run London Pride group, should roll out pounds 12.5, up from pounds 11.1m.

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