Although reams have been written on Y2K or the Millennium Bug, little of it has focused on the risks posed to investors. However, a recent report on the issue by Merrill Lynch looks at just this issue. It finds that the risks surrounding Y2K have clearly diminished over the last 12 months and that a Y2K-related global recession is now highly unlikely.

The only macro-economic effect that most fund managers expect to see relates to fear of the bug and not to actual computer failures.

Nonetheless, it suggests that risks can be reduced by investing in largecap stocks and the most developed markets. It also points out that sectors such as house building are least affected by Y2K issues and offer an exposure hedge, whereas industries like insurance are more vulnerable to scare stories.