By Philippe Brugere-Trelat, Executive Vice President and Portfolio Manager for Franklin Mutual Advisers, LLC.

Any comment on the European sovereign debt crisis seems to have a short shelf life these days as observers’ focus shifts to the next summit or major development. Unfortunately, the sense of urgency among European politicians for addressing the issues does not seem to match the financial markets’ much shorter time horizon. As a result, the markets have been putting pressure on politicians to find a viable solution as time may be running out to prevent a major catastrophe. In our view, the European equity markets are unlikely to recover until there is a comprehensive resolution, but for now politicians seem to be hopping from one summit to another.

Regarding the impact of the sovereign debt crisis on equity markets, shares of European banks have generally been receiving the brunt of recent shock waves. As the largest holders of the region's sovereign debt, European banks stand as the major channel of contagion. They are faced with the dual challenge of having to write down their exposure to southern Europe's sovereign debt and the need to increase their capital ratios. In view of these pressures, particularly the risk of significant equity dilution, the Mutual Series team has been highly cautious about the region's banking sector.

Additionally, even though shares of banks may have experienced the sharpest selloffs throughout the crisis, Investors have been generally indiscriminate and sold off shares of European companies in just about every sector.

We have been finding value in companies that are domiciled and traded in Europe but are not significantly European in their footprint-for example, large, multi-national companies that derive a significant portion of their profits from markets outside of Europe that are anticipating a relatively higher rate of gross domestic product growth in the coming year. These exporters have also been benefiting from an added competitive advantage derived from the decline of the euro against other global currencies. More than ever, we continue to focus on large companies with solid balance sheets that are not fully reliant on banks to finance their operations.

Presently, we have been finding opportunities among consumer staples companies in the tobacco, food and beverages industries that pay attractive dividends-something we welcome as a sign of good corporate health in this current environment.

Overall, we have continued to favor well-diversified portfolios, with risk spread among a large number of investments, and we have tended to hold cash, which can be helpful in managing risk during difficult market scenarios.