European top 200 places for AIB and B of I

Only two Irish companies - Allied Irish Banks (AIB) and Bank of Ireland - are likely to feature in the top 200 European stocks that will give investors a pan-European exposure to liquid, blue-chip companies post-EMU.

The single currency will help to create a single pan-European stock market, says Dutch banking group ABN-Amro.

In a detailed document on the future of equity markets when the single currency comes into play, ABN-Amro has suggested that the top 200 European stocks will give the optimal balance for investors, particularly index-based tracker funds.

Only AIB and Bank of Ireland are included in the current list of Europe's top 200 companies.

But in the presentation to Irish fund managers this week, ABNAmro, said that a country-based investment strategy would continue for small and middle-capitalisation stocks, with investors focusing on the value any particular stocks offer to investors.

In the past few years, overseas investment in Irish stocks has largely come from British and American institutions, but there has been clear evidence of increasing investment in Irish stocks by European institutions in recent months, says ABN-Amro's head of equity sales in Ireland, Mr Joe Gill.

The European investors - who have traditionally invested heavily in bonds and their own domestic equities - have been aggressively moving into stock markets like Ireland to build up a portfolio of international equities ahead of the introduction of the single currency.

These European investors are seen as long-term holders of Irish shares and differ from American investors who have traded in their Irish equity investments.

Mr Gill said that, while Irish institutional investors will undoubtedly reduce their holdings in Irish equities as they build up their overseas shareholdings post-EMU, there will be no immediate massive sell-off.

"We believe it will be an orderly transition and that decisions to disinvest will be taken on a value basis."

He added that small and middle-sized Irish companies which provide value should not be negatively affected by the shift in investment focus post-EMU.

"A lot of investment houses have specialist teams working in this sector of the market and they will buy shares on value wherever they are."