Eurozone fundamentals still sound

Current market conditions provide attractive opportunities in European stocks that can withstand the global headwinds, according to Peter Jarvis, manager of the Foreign & Colonial Eurotrust.

"The euro's current strength against Sterling and the dollar is a risk to earnings. However, we believe the long-term case for investment in selected European equities remain robust," Jarvis said.

Last week the European Central Bank (ECB) left rates unchanged at 4%, arguing short-term inflationary pressure. ECB considers that fundamentals in the euro zone are still sound for economic activity and that both domestic and overseas demand should underpin growth in 2008.

"This view has been backed by recent data indicating that fundamentals are holding up against the backdrop of the challenges of the strong euro and lack of monetary easing," Jarvis explained. "Our view is that the region's diversified export base will continue to provide some protection from the US slowdown. "

He added that structurally Europe is also shielded, to some extent, by consumers that are less indebted and housing markets that for the most part are less stretched than their US and UK counterparts.

"We have maintained our focus on seeking out companies with robust earnings and future potential, and trimming exposure to more cyclical companies that are likely to suffer more in a more protracted economic downturn," he added.

Stocks currently favoured by Jarvis include leading entertainment company Vivendi, whose recent tie-up with Electronics Arts could help crystallise value in their gaming business. He also likes stocks geared into Asian domestic demand like Folli Follie, a Greek mid-range jewellery manufacturer.