'The US dollar will remain a very important currency. What does happen, though, is that countries must decide as they go forward where the investment opportunities are and how to better match up their trade patterns with their structural reserves.

'Because they now have a very large proportion of reserves in US dollars, on the margin what it will mean is ongoing diversification out of US dollars into other currencies.'

Barclays Capital's chief economist, emerging Asia, Peter Redward, is blunt with his assessment. 'The euro is emerging quite clearly as an alternative reserve currency. Fixed income euro assets are larger than US dollar fixed income assets and the US dollar has been engaged in a trend decline for effectively six years now, which has required it to be propped up by central banks with the result that the region has accumulated huge foreign exchange reserves,' he says.

Data from the US Treasury Department and from European capital markets, captures the current trends.

In August, the latest month for which US Treasury Department data is available, it emerged that overseas private investors sold a record amount of US securities, with total holdings of equities, notes and bonds in the hands of foreign investors down a net US$163billion. On the flip side of the coin, capital market activity in the Eurozone has accelerated, and data from Thomson Financial shows that in the first 10 months of the year, new share offerings by Eurozone issuers outstripped even the buoyant market for IPOs in Asia.

Thomson data shows that by October this year, 370 Euro IPOs raised an equivalent of US$85.2billion, or 36 per cent of global IPO capital raising, to outrank all-American issues (257 IPOs that raised US$70.8billion or 30 per cent of global IPO raisings), and Asia-Pacific ex-Japan, (465 issues that raised US$66.8billion, or 28 per cent).

An US$8billion issue from Russian bank OAO VTB Bank was the world's biggest.

On global debt markets, meanwhile, a similar transformation of the natural currency pecking order was under way, and Chinese yuan denominated bonds were for the first time the most dominant issues by Asian currency issuers, with proceeds totalling US$28.9billion from 139 issues.

Asian issuers showed a clear preference for raising their capital with euro-denominated issues that increased in value by 11.1 per cent versus the January to October period last year to become the most preferred international currency in the region, the Thomson data shows. Returns to private equity investments in Europe have also proved an irresistible lure to wealthy investors around the world - including those in the US who have been swapping their dollars for euros to participate in the market as data, compiled for European Private Equity and Venture Capital Association (EVCA) by Thomson Financial and PricewaterhouseCoopers EVCA, shows.

Top quarter private equity funds returned 23.3 per cent in 2006. The data shows a record equity investment of Euro71billion (HK$810.6billion) was made by the funds (up 51.2 per cent from Euro47billion in 2005) in more than 7,500 European companies.

Top picks for the smart-money flowing into private equity were consumer-related and non-industrial or financial services businesses, which together absorbed more than 30 per cent of investment, followed by communications businesses.

US institutional investors and wealthy individuals stood out as the largest source of capital into European funds at 28.8 per cent, with Britain close behind at 21.3per cent.

And if further proof were needed of the changing landscape, it came in an October survey by Reuters of British fund managers, who said they had cut their exposure to North American stocks to 30.8 per cent from 35.2 per cent in September, while raising exposure to the euro zone from 15.6 per cent to 17.1 per cent and to Asia ex-Japan from 7.7 per cent to 9.5 per cent.

In Britain, where a spending binge on property has driven yields to a low of 3 per cent, British investors now show a clear preference for domestic equities, according to Ramon Eyck, fund manager for Asia-Pacific and emerging market products for Skandia UK.

'There is a limited interest in China opportunity funds, but most money goes into British equities,' Mr Eyck says.

Skandia, a financial services group headquartered in Southampton, has total assets under management of #60billion [HK$976.4billion], of which just #1billion is invested in Asian equities, Mr Eyck says. The launch last year of a British 'Best Ideas' fund (not authorised for distribution to Hong Kong retail investors), proved 'phenomenally successful', Mr Eyck says. The fund has 10 managers, each responsible for actively managing a 10-stock British portfolio.

'It was launched a little over 12 months ago and we have already attracted investments of #900million. So we are now thinking of a European 'Best Ideas' Fund.'

But now the investments that have poured into housing in the Eurozone, and in Britain in particular, might come under a cloud.

Buyers were willing to bid up prices so long as real interest rates were low, but with inflation gaining momentum, rates are likely to rise and alter the investment arithmetic.

'We are seeing significant concerns about inflation,' notes European equity strategist Jonathan Stubbs in the November edition of Citi Global Equity Strategist.

'Issues about high oil prices, Chinese export price inflation, and even runaway pork prices are worrying investors. This is a risk to our bullish outlook as rising/high inflation may hamper central banks' willingness to ease policy, despite slowing growth, and weigh on corporate profitability.'

Much of that inflationary pressure in the Eurozone stems from emerging markets, food prices and energy and some of these pressures could be offset by weaker housing and sub-trend consumption growth in advanced economies, he adds.

On the cards as rates begin to rise, warn the Citi strategists, is a rude awakening for house buyers who have driven British house prices up to the point where rental yields were squeezed to just 3 per cent - an overvaluation that will become apparent as rates rise.

Citi strategists recommend an overweight exposure to European equities, favouring companies operating in the media sector, vehicles, components, software and services, diversified financials, insurance, transport and capital goods.

On the other side of the Atlantic, meanwhile, the concerns of investors over the outlook for the embattled and volatile US equity market were heightened by reports that billionaire investor George Soros forecast that the US economy is 'on the verge of a very serious economic correction' after decades of overspending.

'We have borrowed an awful lot of money, and now the bill is coming to us,' Mr Soros said during a lecture at New York University.

The other side of that same coin will be the accelerated emergence of the euro as the safe haven currency for global reserves - though such an outcome is not guaranteed.