The consolidation of European stock markets following the introduction of the euro could see a unified European bourse that will rival the New York Stock Exchange - the world's biggest - in volume and value. Stocks on European markets will be converted to euros following the introduction of the unified currency on January 1 next year. 'If you look at in the long term, a unified stock market is definitely a possibility because, if stocks across the continent are quoted in the same currency, why should you have different exchanges in Frankfurt, Paris or Milan when you can have just one central exchange?' Schroder's fund manager Richard Shum asked. 'Individual markets' trading and disclosure regulations will have to converge because of the use of a single currency - it will be a natural tendency. Eventually, we could end up a single stock market bigger than the NYSE.' An early indication of this was the formation of strategic alliances between German and French futures markets, Mr Shum said. After the introduction of the euro into stock markets, if the same stocks listed on two or more exchanges were priced differently, there would be a tendency for their value to converge. 'After January 1, all the stock markets will be operating under the same benchmark: that is measured in euros. There will have to be a tendency for these markets to merge,' Mr Shum said. Not that those frenetic trading sessions that happen at the NYSE on Wall Street are likely. 'Increasingly, screen trading will come into play, so it does not really matter where the bricks and mortar are,' Mr Shum said. 'We are not likely to see a single building in a certain city operating as a unified European stock exchange, but a series of information technology linkages between the various markets, effectively making it a single stock exchange.' For the investor it was a plus because single pricing made investment analysing and decision-making easier. Previously, those investing in European exchanges were looking at different currencies, interest rates, forex conversion rates and hedging. 'Now, all of a sudden, you only have one interest rate and one currency to deal with. For fund managers, European country allocation will decrease in importance.' The forex cost would go down when switching from market to market and the complexity of hedging funds would be simplified. 'For example, a Hong Kong investor might think the Italian lire could drop against the French franc because it is fundamentally weaker,' Mr Shum said. 'But, with a single currency, all Hong Kong investors need to do is hedge their Hong Kong dollars against the euro and not against a basket of European currencies.' There is a likelihood that European economies will grow at a faster rate than those in the United States over the next few years, presenting investors with increased opportunities. Also, corporate profitably, through restructuring, and acquisitions and mergers, is on the rise, pointing to improved and prolonged good performances on European markets. The current combined market capital of exchanges in Europe that will be switching to the euro is US$2,025 billion, giving it a capital to GDP ratio of 31 per cent. Britain, which is still to make a decision when it will begin trading in the euro, has a market capitalisation of $1,478 billion or 50 per cent capital to GDP ratio rate. The United States, on the other hand, has a market capitalisation of $7,227 billion, but a capital to GDP ratio of 102 per cent. 'This means that markets in Europe, because of their relatively low capital to GDP growth, have a far greater potential for growth than the United States, which has an extremely high ratio,' Mr Shum said. He acknowledged difficulties in predicting rises and falls in currencies but it was likely the euro would strengthen against the US dollar offer in the next few years. 'In Europe, you have relatively low interest rates and improving economic growth. Whereas, in the US, economic growth seems to have peaked and is possibly on a downward trend,' Mr Shum said. 'The deutschemark will be the most important influence on the euro and that currency is an alternative one for many central banks. 'Once the deutschemark disappears, the euro will take its place as a reserve currency with these banks. That will help support the euro.'