The shift towards European equities is turning into a veritable tidal wave as international fund managers view the new European super economy as the key growth area for shell-shocked investors who have watched in horror as the once-touted Asian tiger and South American jaguar economies have collapsed like dominos.

There are some sound reasons for moving pension and other investment funds into European stocks: Economic Monetary Union means that free trade and competition between European manufacturing and industrial sectors will mean very real and substantial prospects for growth. The rush to privatise utility companies, airlines and other public transport companies and firms in the telecom and electronic sectors is prompting domestic European pension funds to buy heavily into equities.

But this new market poses as many investment questions as it purports to answer: how do Irish investors get into this market? What sort of a stakes should they invest? What are the tax repercussions? What funds should they or say, their pension trustees, be investing in? Is it correct that this is going to be a sectoral investment phenomena, or will the old strategies of investing in EMU countries still apply?

Mr Niall O'Doherty is investment and research director of the independent financial advisers Asset Management Trust. He agrees that the "most compelling story for 1999 is the focus on European blue-chip stocks throughout the first phase of EMU".

"You just have to look at the published fund indices, which are increasingly sectoral and not by country anymore," he says. "Fund managers, who used to allocate a portion of their annual spend by country - 5 per cent for Ireland, 15 per cent for Germany, etc, are now dividing the pile according to sectors - say, 10 per cent for financials, 15 per cent for telecoms, 10 per cent for transport sectors.

"The problem for Ireland and Irish investment funds is that no Irish companies are sufficiently large to merit inclusion in new premier European indices, such as the FTSE Ebloc 100, which will probably be the most important. Ireland's largest stock, AIB is currently 119th in the FTSE Eurotop 300."

The massive mergers being announced - of Deutschbank and the US giant Bankers Trust, for example, means that there will be even less interest from international fund managers in Irish financial stocks. "The problem with holding Irish stocks is that their values only go up if someone wants to buy them, but this won't happen if they aren't visible."

Irish companies with good niche markets will always prosper, says Mr O'Doherty, but the pressing question for the likes of the Irish banks is, where is the niche in such a huge European and international market?

Companies like Asset Management Trust are reviewing client portfolios with a view to reducing high exposure to Irish stocks. But for someone in a larger Irish-based investment fund, such as a group pension fund, the onus is on the contributor to find out about the fund manager's strategy.

Most Irish-based pension fund managers are already increasing their portfolio of European stocks and steadily cutting back their Irish ones, says Mr Dara Fitzgerald of Hibernian Investment Managers. Irish fund managers are not writing off the big blue-chip Irish stocks, however. "In their sectors, they are performing very well against international companies," says Mr Fitzgerald, citing the likes of CRH, the two main banks, Elan, Smurfit and others and he expects they will remain among the top stocks in many funds.

To facilitate the interest in Europe, companies like Hibernian have already put in place European equity options for pension and other investors. The EuroFund and the EuroEquity Fund, which invests only in companies in the 11 EMU states, were set up at the beginning of the year and it is just a matter for clients - whether corporate trustees or individuals - to request part of their portfolio be moved.

"We have tended to refer to the weighting by country in the EuroFund, for example, but increasingly trustees and clients are asking about the sectors that are represented."

There are compelling reasons for many to invest with giant offshore international fund managers - their size, experience, access to markets and resources, etc. But there are still some drawbacks - the main one being that capital gains tax remains at 40 per cent on any profits. It is just 20 per cent on Irish-based share profits.

The expectation, however, is that there is going to have to be standard capital tax rates for investment funds throughout the EMU and EU sooner rather than later and that disadvantageous tax rates would not be a deciding factor for much longer.