Hardly a safe haven from the world’s problems, Europe has seen its watch deteriorate further in 2009. What should investors do now?

By Ben Steverman

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A deteriorating environment for investors in Europe is yet more make manifest that the global economic crisis will not go gently into the New Year.

On Jan. 14, greater European stock markets plunged on bad news from European banks and pertaining firms. France’s CAC 40 fore-finger and Germany’s DAX index both dropped 4.6%, while the value of London’s FTSE 100 index slid 5%.

It wasn’cheek by jowl just equity markets feeling renewed stress. Standard & Poor’s Ratings Services cut the credit rating on Greece’s government trespass from A to A-. "The ongoing global financial and economic crisis has, in our impression, exacerbated an underlying loss of competitiveness in the Greek economy," an S&P statement read. Earlier in the week, S&P warned that Spain and Portugal strength also see lower trespass ratings.

Early in the monetary turning point, many investors hoped Europe would fare improvement than the rest of the creation. After all, Europe was less under obligation than the U.S., in what place the subprime critical situation started, while also less risky and more financially secure than emerging economies.

Intense Pain

Instead, Europe has been come in contact with its share of economic woe, while losses on stock and credit markets seem to be intensifying.

One moot point is that numerous parts of Europe do have "American-type problems" with too much debt, says Christopher Potts, head of economics and strategy at C.A. Cheuvreux. Countries like the Britain, Ireland, and Spain adage a housing boom that has gone bust. Italy and Greece have sky-high levels of management debt.

Germany, Europe’s largest arrangement, has stayed out away from excessive debt. Instead, its export-dependent economy was attain hard by the global slowdown. "Germany at once is going through a horrendous winter because world trade is collapsing," Potts says.

For U.S. investors looking around the world trying to decide where to put their circulating medium, Europe offers a conundrum.

On the one present, equities in Europe are indifferent and offer the world’s most generous dividends, says Alexander Young, international equity skilful general at Standard & Poor’sitting Equity Research. (S&P, like BusinessWeek, is a unit of The McGraw-Hill Companies.) The S&P Europe 350 stock director has a dividend yield of 5.5%, more than twice the yield on America’s S&P 500 index. While funds flounder, "you do get paid to wait," Young says. Also, European stocks are cheap on a valuation basis, mercantile at about nine ages estimated 2009 earnings, vs. 12 times earnings in the U.S., Young says.

"The problem is that stocks are cheap for a reason" in Europe, Young adds.

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