Pan-Europe index ready for U.S. use Eurotop 100 offers most active stocks

October 19, 1992|By Ian Johnson | Ian Johnson,New York Bureau

NEW YORK -- While the ongoing economic turmoil in Europe might be bad news to some investors, the organizers of a new European options and futures index are gloating over their good luck.

Due to be launched Oct. 26 on the American Stock Exchange and the Commodity Exchange, the Eurotop 100 represents the 100 most actively traded European stocks in nine countries, much as the S&P 500 traces top U.S. stocks.

The idea is to give Americans the chance to invest in Europe at one go and still be able to hedge against volatility.

"The more things go on over there, the better I feel about the Eurotop," said Mac Lamm, chief economist of the Commodity Exchange (COMEX) in New York.

Eurotop, the first pan-European index, would track the nine nations' 100 most highly capitalized stocks, representing more than 2.5 percent of total market capitalization in Britain, Germany, France, Switzerland, Italy, Netherlands, Sweden, Spain and Belgium.

The highest number of stocks, 22, would come from Britain, to reflect London's position as Europe's most important market, followed by 15 each for France and Germany and the remaining divided among the rest. After 1994, the index may be reweighted.

Some of the stocks on the index include well-known corporations, such as Germany's Volkswagen AG, France's Peugeot SA, Netherlands' Royal Dutch Petroleum, Sweden's AB Volvo, Switzerland's Nestle SA and the U.K.'s British Steel PLC.

The local share values will be converted into European Currency Units (ECU), and then into dollars at a weighted rate to prevent an increase in the index being wiped out by a drop in the ECU. This is a standard practice also used in calculating the dollar value of Japanese indexes.

Investors can buy options or futures on an index contract, which will open at $81,000.

Unlike trading on Japanese indexes, which, because of the 12-hour time difference with Tokyo, take place after the Japanese trading has closed, the Eurotop will be partially traded while European markets are open. The AMEX will open options trading at 8:30 a.m. and COMEX will open futures trading at 7:30 a.m.

Ivers Riley, who heads derivatives trading at AMEX, said that, while the Eurotop would be especially useful for institutional investors who might want a one-stop buy into all of Europe, individual investors could also make use of it.

Although a contract will cost $81,000, investors could buy on margin for an initial $2,000.

"I wouldn't recommend an uninformed person jumping into this right away, but we do see retail sales of this possible," Mr. Riley said.

Analysts were mixed in their view of the new product. Jay Hohmann, vice president for derivative products at Donaldson, Lufkin & Jenrette Inc., said one problem might be that Eurotop falls between the cracks.

Investors interested in Europe probably have already found a way to enter the European market, for example, by trading on the individual countries' indexes.

"This product is probably just a little too late. As for retail, it might be too complicated for ordinary investors," Mr. Hohmann said.

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