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US equity: UK bears in sheep's clothing

"10,000 by 2000!" That's the latest prediction for the millennium opening on the Dow Jones Industrial Average from Ed Yardeni, chief economist at Deutsche Morgan Grenfell (DMG). Yardeni ­ who might be described as the most optimistic man in the world ­ will surely see his prediction tested now that US interest rates have started to rise. If he is proved right, investors worldwide will rejoice ­ except perhaps those in the UK.

In the UK a different sentiment prevails. UK institutional investors have missed out on the American stock market rally to such an embarrassing degree that their reputation as top-quality fund managers is now seriously in doubt. Particularly galling to UK institutions, continental European money managers have invested huge amounts of their private-client funds in US stocks and performed excellently. Fund managers at European banks are often unfavourably compared with their supposedly more sophisticated peers at UK institutions. But the naive Europeans have got it right and the clever-clever Brits have got it wrong.

Currency considerations drive many Europeans' investment decisions. In seeking exposure to the rallying US dollar they have enjoyed the double benefit of huge currency and stock market gains.

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