Does Europe finally look tempting value? Leaders meeting in Brussels for the EU summit in the past two days had cause to celebrate as well as to worry. The EU has been awarded the Nobel Peace Prize. Spain has narrowly avoided the ignominy of seeing its bonds downgraded to "junk" status, and it is "Single Market Week," marking 20 years since the establishment of the European single market in goods and services. But in terms of investment, Europe's best days must still be ahead of it - because in aggregate it has performed less well than many other areas. Anyone investing on January 1 1993 - the day the single market came into force - would have been better off putting money into the UK, the US or emerging markets, all of which have beaten European (ex-UK) equities. Richard Portes, professor of economics at London Business School, says Europe's reputation for sluggish economic performance is undeserved. Per-capita GDP growth in the decade up to the financial crisis was within a tenth of a percentage point of the US . . . and manufacturing productivity in countries like France and Germany is higher relative to the US. Its investment underperformance relative to the US is easy to explain, too. Portes says it's down to the so-called "Greenspan put" (and its successor, the "Bernanke put"). If you are convinced that the central bank will respond every time markets tank, that puts a floor under prices. Portes adds that while Europe hasn't been so good at innovation in areas such as software and biotechnology, it has many solid companies in areas such as pharmaceuticals, chemicals, engineering and luxury goods. The cornerstone of the argument for buying Europe is that shares in many world-class outfits now look temptingly cheap - even though prices have rallied over the summer following the commitment by the European Central Bank to support peripheral economies. John Bennett, director of European equities at Henderson, is a convert to the value case. European blue chips operate in international markets with global sources of revenue, giving them some defence against sluggish sales in Europe. Compared to the US and emerging market, he thinks European shares are "just as good, just cheaper." Pick of the "passives" Fund Type Total expense ratio % Index tracked iShares Europe ex-UK MSCI Europe ex-UK dbx MSCI Europe TRN Lyxor EuroStoxx 50 TR EuroStoxx 50 Black Rock Continental European Tracker Unit trust FTSE World Europe ex-UK HSBC European Index M&G European Index tracker Legal & General European Index Vanguard FTSE Developed Europe All funds have sterling share classes. Source: Morningstar, fund websites Jane Sydenham, investment director at wealth manager Rathbones, points out that relative to the US, valuations on European shares are at a 40-year low, while according to William Hobbs at Barclays Wealth, the price/earnings ratio of companies in the MSCI Europe ex-UK index is now almost a whole standard deviation below its l0-year average. "Valuations provide room for investors to be handsomely rewarded even if analysts turn out to be too optimistic about earnings," he says. Some feel that will be the case. Willem Sels, head of investment strategy at HSBC Private Bank, points out that while analysts" earnings forecasts for US companies have been steadily reduced throughout the year, their European counterparts have trimmed forecasts by less. Investing abroad has its risks Most execution-only stockbrokers now offer international share dealing, and promote the diversification benefits of investing overseas. Academics agree that while stock markets are more globalised than ever, there are still benefits to owning overseas shares. Overseas shares are almost all held via nominee accounts, and many European countries have done away with share certificates altogether. You can put overseas shares into an individual savings account provided they trade on a recognised investment exchange. All the continent's main bourses meet this requirement. The dealing charge is often the same as for buying UK shares, but a broker may charge you for converting sterling into euros, Swiss francs or Danish kroner, or for operating a multi-currency dealing account. There is no stamp duty payable on European share purchases. Many European companies conduct their investor relations, including annual reports, in English, while broker forecasts and recommendations on bigger companies" shares are readily available on websites, such as ft.com. However, investing in foreign shares brings some risks. Exchange-rate movements may reduce your profits and dividend income in sterling terms. If you hold shares directly, rather than through a nominee account, you will receive dividend cheques or payments in a foreign currency and most banks will charge a fee to process such payments into sterling. Many European countries also levy withholding taxes on dividends and the amount can vary significantly - in Switzerland, for instance, it is 35 per cent. It may be possible to reclaim or offset witholding taxes against UK taxation, but doing so will require additional paperwork and execution-only brokers won't help with this. Finally, standards of disclosure and corporate governance vary surprisingly widely across Europe. In many countries, dual share classes with different voting rights are still quite common, allowing major shareholders to retain control over companies. Anti-takeover devices known as "poison pills" are also more prevalent than in UK companies. Then there are the economic risks. "We look at Europe top-down rather than bottom-up, and we see time bought instead of real solutions in place," says Brian Dennehy, manging director of Dennehy Weller. "You've got several countries in Europe now wanting to break themselves up, notably Spain and Belgium, the maths in Greece still don't add up and France is a creeping basket case," he continues. Dennehy concedes that Europe has some fine companies, "but look at where they're selling - into China, into the US." Jeremy Batstone-Carr, head of research at stockbroker Charles Stanley, agrees that the lingering macroeconomic risks are a big worry, and is also concerned that share prices are heading upwards at the same time as profit forecasts are trimmed. He is particularly wary of cyclical and financial shares, which have been the big gainers from the European Central Bank's pledge to do "whatever it takes" to preserve the eurozone, and prefers defensive titans such as food producer Nestlé and pharmaceutical groups Novartis and Roche - even though their shares are more expensive. Hobbs has compiled a list of European "opportunity stocks" consisting of shares that Barclays" analysts rate highly, but whose shares have underperformed. It includes utilities Endesa and Veolia Environnement, engineer Alstom, steelmaker Voestalpine and telecoms groups Vivendi and Telecom Italia. Telecoms groups Swisscom, Telenor, Tele2 and TeliaSonera also feature in the SG Quality Income index, a collection of global high-quality income shares assembled by Andrew Lapthorne, an analyst at Société Générale. A selection of low-cost passive products tracking European indices is shown in the table. But Rathbones" Sydenham believes that given the gulf in valuations between the cheapest and most expensive shares in Europe, active management is probably more appropriate for individual investors. There's plenty of choice. The Neptune European Opportunities fund is on the recommended lists of Hargreaves Lansdown, Fidelity and the Share Centre. It's run by Rob Burnett and has comfortably beaten its peer group and benchmark index (MSCI Europe ex-UK) since inception, although returns in the past few years have been more mixed. IM Argonaut European Alpha, Cazenove European and Schroder European Alpha Plus are also popular open-ended choices on leading platforms, while Henderson European Growth is the only European fund that attracts both a five-star quantitative and a "gold" qualitative rating from funds data group Morningstar. The two Europe funds featured on Investors Chronicle's Top 100 funds are both investment trusts: Jupiter European Opportunities and Fidelity European Values. The Jupiter fund trades at a slight premium to net assets, but Fidelity's is at a 13 per cent discount.