GLOBAL - The UK adopting the euro represents one of the biggest investment risks facing the US, according to Heydon Traub, managing director, global asset allocation at State Street global Advisors (SSgA).
Traub said: “The UK is the largest non-US stock market. It also has a large well-funded pension scheme relative to the rest of Euroland.
“Adopting the euro would make those funds re-assess what a ‘domestic’ security is - i.e, it would include all of Euroland. This would likely lead to selling of UK stocks and buying of other Euroland stocks. In addition, the pound is likely to fall versus the euro prior to its entry again making UK investments lag.”
SSgA took a page from the Late Show with David Letterman to present its own ‘Top 10 Investment Risks for 2002. The others were:
10. Tech stocks earnings don’t meet very lofty expectations.9. Due partly to the above, earnings growth for the overall market comes in well below the current expectation of 16%.8. With anyone who had been thinking about trading up having already done so the last few years, the housing market falls apart.7. Consumer spending finally drops off.6. If our economy slows as noted above, Japan’s economy is more likely to move into a full-blown depression.5. Significant terrorist attacks still are a big risk, as is US military involvement in areas outside Afghanistan, such as Iraq.4. The US dollar tanks.3. Even if the dollar doesn’t fall, it seems inflation could easily rear its head by the end of the year.
Reverting to true Letterman style, Traub lists as the number one investment risk (already fulfilled!) in 2002 as:
1. The Patriots Win the Super Bowl.
Traub said: “That’s right. Based on history, if an original AFL team wins the Super Bowl, stock returns will be negative for the current year. Conversely, there is almost a perfect historical correlation between when the market goes up and when an original NFL team wins.”
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