The advent of European Monetary Union (EMU) has taken away a lot of traditional opportunities for fund managers, says Jon Bailie, associate director, sales and client service for Frank Russell Company's International Funds Group.
"The way people look at European equity markets is having to change," Bailie says. "You're not looking at Italy versus France: you're looking at BMW and VW versus Renault and Peugeot, then at all of those versus Fiat."
"We shall see over the next few years how well the different managers adapt."
Frank Russell, which manages the managers within the ANZ Ascent Investment Programme, sacked one of European equity managers late last year because it "was not happy with the way they were thinking about EMU".
London-based Bailie says the advent of EMU six months ago has made some major changes to the way people make money. While they can no longer trade currencies, opportunities are emerging through such factors as the diversification of the bond market and a wave of merger and takeover activity.
Bailie says that since the advent of EMU at the start of the year:
A single European bond market has been created and he's expecting a massive increase in non-government bonds, as large companies take advantage of a multi trillion dollar market to support their debt issues.
Merger and acquisition activity has made a huge impact and is expected to continue for some time. JP Morgan is estimating US$1.4 trillion worth of M&A activity in Europe this year.
Economic integration hasn't happened. For example, Ireland is looking at more than six per cent GDP growth this year, Sweden at less than one per cent while the average is around two per cent.
However, Frank Russell's view is that economic convergence may not be necessary for markets to come together: "the market becomes one when investors and issuers merge".
Bailie says, however, that country effects continue to be important.
"But we don't need to have economic integration as long as investment managers think that way," he says.
The advent of European Monetary Union (EMU) has taken away a lot of traditional opportunities for fund managers, says Jon Bailie, associate director, sales and client service for Frank Russell Company's International Funds Group.