A leading fund manager has urged investors to back smaller Irish firms and not be swept away by the wide choice of European shares now on offer to investors which don't involve currency risk.

Mr John Lawrie, executive chairman of Aberdeen Asset Management Ireland, said smaller Irish shares, along with those in Britain and the US, had fared less well over the last two years than leading stocks. This was potentially damaging to Irish industry and commerce and to the health of the Irish Stock Exchange.

"If small, growing companies are undervalued, they will not be able to raise fresh capital by floating and thus one important route to growth and prosperity will be denied them," he said.

Meanwhile, companies which already have a listing will have to seek alternative means of realising value and may fall prey to larger corporations.

Speaking before the official launch of Aberdeen Asset Management yesterday, Mr Lawrie said the elimination or neglect of small companies would also make it harder for the Irish Stock Exchange to resist the trend toward centralisation in larger financial centres.

Aberdeen Asset Management, which manages Scottish Provident's Irish assets, moved the management of those assets from Edinburgh to Dublin last year. Mr Lawrie described the move as "a vote of confidence in Dublin as a financial centre".

The firm, which holds stakes in a large number of second-line Irish stocks, was ranked ninth in the industry in 1998.