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Euro is a threat to UK small caps, says industry

UK/EUROPE – The majority of UK fund managers, broker analysts, and smaller companies believe that small cap UK companies will not benefit from joining the European Monetary Union (EMU), according to a Reuters survey, conducted by London-based Tempest Consultants.

More than half of those surveyed, 53% of broker analysts and 58% of fund managers and smaller listed companies, say there will be no benefit to them if the country joins the euro.
The contrast is sharp when compared to UK larger companies, which supported joining the monetary union with a majority of 62%, according to survey earlier this year, says Gregor Bamert, vice president of Tempest.

On the one hand, only about 5% of the smaller companies think that introducing the euro to UK would worsen their sales, profits, financing costs and valuations on the market.
On the other hand, around 20% of the fund manager and brokers’ analysts think that being part of the monetary union will worsen the plight of the smaller companies when it comes to profits, financing costs and valuation on the market.
About 10% think it will affect sales in a negative way.

Bamert says that while lower interest rates in the euro-zone should lower the financing costs of UK companies in the case of joining EMU, smaller firms would effectively lose out on stock market valuation.

Joining the monetary union would create more competition for UK companies by doubling the number of companies in the euro-area, which would have a negative effect on the market valuation of British firms, Bamert adds.
When the single currency was introduced it had the same effect on smaller companies in the joining countries: fund managers traded shares in local small and medium size companies to stocks in large foreign firms, he says.

Despite the considerable resistance to the euro, around half of all the surveyed UK smaller companies, fund managers and brokers’ analysts believe that, on the whole, business would be as usual within the monetary union.

The survey covers 64% (430 companies) of the £88bn equity market value of 700 smaller quoted companies in the UK market, 68 fund management groups with around £44bn invested in UK equities, and 232 smaller company UK sell-side analysts.

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