With many equity investors becoming disillusioned with stock market performances in recent times and probably sitting on losses due to the severe downturn in global markets during the past three years, is it time to be considering re-entering these markets?

If we are to believe many so-called experts writing in the financial Press, stock markets are on their way to recovery and a "buy now while it's cheap" attitude prevails.

Historically it's true, equity markets have always been resilient and sooner or later recover from whatever disaster has befallen them, and some may argue strongly after a sustained downturn. However, beware, the investment world is very different these days, with perhaps greater uncertainty than ever existing today.

Despite reservations by many investors, there will always be opportunities and perhaps we should be looking closer to home to find good value.

Europe's economic woes have been well documented in recent months. With growth stagnating, consumer and business confidence falling, unemployment growing and comparisons with the moribund Japanese economy becoming headlines, it is little surprise that investors have been wary of dipping their toes back into European equity markets.

Clearly, the economics of certain countries, and in particular those of Germany, France and Italy, are struggling, but their difficulties mask strong growth in other parts of the region. In Spain, Ireland and much of Scandinavia, Europe actually contains some of the world's fastest growing economies. Needless to say, these countries are generating some outstanding investment opportunities for those willing to look beyond the oversimplified picture painted by headlines bemoaning the "European economic malaise".

Publicly naming favoured stocks can be a dangerous business for fund managers, but the following examples highlight the types of opportunities available in these countries. Firstly, Dragados, a Spanish construction group, currently has a 16-month backlog of work, which is underpinned by the Spanish infrastructure plan. Despite the stock's strong performance during the past three years, there would seem to be plenty of further potential upside for investors, based on the company's future growth opportunities.

Staying with the construction sector, CRH of Ireland has shown spectacular growth during the past ten years on the back of the country's regeneration programme. Going forward, the company seems well positioned to benefit from EU enlargement as well as from infrastructure spending in the US.

Turning to a different sector, Portugal Telecom possesses excellent growth prospects and investors should benefit from increasing revenue generation from its domestic and Brazilian mobile business as well as by its cable division.

These are just three examples of the investment opportunities that some of Europe's faster growing economies are producing. However, there are also opportunities to be found in those countries that are experiencing sluggish headline economic growth.

Looking at French and German economic data, or at recent returns from these countries' stock markets, makes depressing viewing. Yet even in these stagnant economies, some companies are thriving. Often this is achieved by exploiting a specific niche, or by tapping into growth opportunities beyond a company's national borders.

France's Essilor, for example, has grown to become the world's number one corrective lens manufacturer and has seen its share price quadruple during the past ten years. The company continues to generate growth through the launch of new products into domestic and international markets.

French beverage, group Pernod-Ricard is benefiting from an ongoing rationalisation programme and aims to have raised margins from ten per cent to 20 per cent by the time it has finished the re-organisation of its drinks portfolio.

Furthermore, structural reform is also continuing, albeit at a slower pace than had been hoped. In Switzerland, for example, many companies have recently been restricting their share classes in an attempt to become more shareholder friendly.

The recent resurgence in merger and acquisition (M&A) activity is also a welcome development for investors in European markets. The volume of announced M&A activity rose more than 30 per cent year-on-year in the first quarter, with major deals including the Iberdrola and Gas Natural merger in Spain, the scramble for the UK's Safeway and the takeover of the Credit Lyonnais by Credit Agricole in the French banking sector. Rationalisation deals such as these are likely to pave the way for further consolidation and should also generate value for shareholders in the near future.

It is clear, therefore, that while Europe as a whole certainly still faces considerable challenges, there exist some fantastic opportunities for stock pickers within the region. The current environment is not one in which index trackers are likely to prosper, but there remain numerous companies that continue to thrive, be they based in expanding or stagnant economies. For those investors prepared to undertake the thorough research required to uncover these opportunities, there are likely to be some healthy gains to be made.

- John Dresser is an independent retirement planning specialist and director at Hennessey and Partners based in Darlington. He can be contacted on (01325) 488556.

Published: 23/07/2003