Nothing makes investors in developed markets stress more than the potential for sovereign debt defaults. In Europe that potential seems to grow with every passing day. As Portugal, Ireland, Italy, Greece and Spain, continue to grapple with their massive public debts, riots and austerity measures, possible defaults are still a real threat plaguing the eurozone. These worries do have the capability to unhinge the already fragile eurozone recovery, and many investors are steering clear of the continent altogether by avoiding funds like the iShares MSCI EMU Index (NYSE:EZU). However, despite the contagion fears that affect the PIIGS nations, there is still some value there for long-term investors.

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Finding Value Among the PIIGS
Having racked up huge deficits and with outwardly no way to pay the bills, the nations' crises are deepening. Tax hikes, salary cuts in the public sector, curbs on public investment, zero pension increases and cuts in welfare spending are all rudiments of the austerity measures planned for the PIIGS. However, the European Central Bank (ECB) and IMF seem poised to continue with their "nuclear" options and save the PIIGS. Recently, the ECB began the Irish consolidation program which accepts debt instruments backed by the Irish government as collateral against ECB loans as the country attempts to shore up its banking industry. In addition, European leaders are currently negotiating a bail-out package for Greece that would lead to unprecedented intervention into its economy. This includes international involvement in tax collection and privatization of state assets, in exchange for new loans for Athens. Italy features a high internal savings rate and most of its debt is locally owned; giving it more flexibility.

The PIIGS are also seeing some love from an unlikely source: China. Asian investors including the Chinese are expected to represent a large percentage of the buyers of Portuguese bail-out bonds when the 440 billion euro rescue fund begins auctioning them next month. Additionally, Beijing remains a significant holder in both Portuguese and Greek bonds. Chinese officials have shown interest in investing in European assets as a way to diversify holdings in their sovereign wealth funds.

PIIGS in Every Portfolio
In spite of its fiscal worries, Ireland does have one thing that makes it the envy of Europe: It's an emerging technology and biotech powerhouse. Akin to Israel, Ireland has built its economic growth on becoming a technological leader. Functioning as a contract researcher for other pharmaceutical companies, ICON (Nasdaq:ICLR) runs the boring and tedious clinical trials and various development functions needed to bring key drugs to market. The company continues to see sales growth and will be a major beneficiary of increased biotech spending in the country.

Just as Coach (NYSE:COH) is seeing strong demand for its handbags in emerging Asia, Italy's Luxottica Group (NYSE:LUX) is equally benefiting in the high-end eyewear market. Leveraging its brands such as Ray-Ban, the company operates over 1200 premium retail outlets in Asia alone. Recently the company posted an approximately 28% sales gain in emerging markets.

Spain's Telefonica (NYSE:TEF) is more than the local phone company. Receiving more than 70% of its revenue from faster growing markets in Latin America, such as Chile, the stock is poised to benefit from those markets. Similarly, Portugal Telecom (NYSE:PT) has expanded into Brazil, and Africa. Shares of these two telecoms yield 9.1% and 5%, respectively.

Finally, Greece's Coca-Cola Hellenic Bottling (NYSE:CCH) serves 28 different nations including Poland, Russia and Africa. Unlike Greece, robust cash flow from soft drink sales has helped Hellenic keep an investment grade debt rating from major credit raters. Its shares yield 1.4%

Bottom Line
The debt crisis in Europe continues to unfold. With so many investors continuing to shun the eurozone and Europe in general, assets in the region seem ripe for picking. Even in the debt-ridden PIIGS, investors can find some great multinationals trading at good discounts. The previous stocks along with Ireland's CRH plc (NYSE:aCRH) are just some companies to be had. (For related reading, take a look at Austerity: When The Government Tightens Its Belt.)

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Tickers in this Article: EZU, ICLR, COH, LUX, TEF, PT, CCH, CRH, IEV

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