It is time to look back on the first nine months of the euro, and ask how the region's investors have coped with the sudden expansion of their domestic market. They have had to make both a quantitative and a qualitative transition. Equity fund managers used to the relatively underdeveloped stock markets of southern Europe have suddenly been confronted by a range of several thousand listed companies, all denominated in their own currency. Likewise, their colleague in bonds have faced a far greater range of borrowers to understand, and a more complete and detailed yield curve than their national markets offered.
Of course, Europe's asset managers always invested beyond their national borders. But they did so by the method of top-down allocation, taking views on macroeconomics and currency bets. This year, in contrast, they have had to seek performance through far greater attention to the individual securities on offer. For...
