In the last month, European equity markets have fallen amid growing fears that the eurozone would struggle to cope with the huge debts run up by some member states and we would see a double dip recession. In the UK too, markets have pulled back, with the FTSE 100 falling 13.7% in the four weeks to 25th May. This morning the FTSE fell below 5,000, led by banks, after concerns about the eurozone mounted and closed at 4,940.

These concerns date back to earlier this year when signs emerged that sovereign debt issues were plaguing the Greek economy which had spent far beyond its means. Two weeks ago a EUR110bn bailout of Greece by the European Union and the International Monetary Fund was agreed and, initially, this eased investor concerns and markets rebounded.

However, it soon proved insufficient to restore market confidence. Even after the bailout package, Greece's ratio of debt to GDP is projected to reach 150% in 2013 before starting to decline in 2014. Other countries have soldiered on for long periods with exorbitant debt levels e.g. Japan, but their dynamics have been very different. To reassure the market, EU finance ministers met again and put together a EUR750bn package of loans to backstop other eurozone countries if they ran into difficulty.

But investors continue to worry that other Southern European countries like Spain may need a bailout. Over the weekend, the Spanish authorities rescued one of the country's 45 "cajas" or lending banks which fuelled its 10-year housing boom. Yesterday the IMF called on the country to deal with the rest, many of whose loans have turned toxic. Today we saw a hurriedly organised merger between four "cajas" in an attempt to stop them going under. The euro fell sharply in response to the news.

In addition to these problems, markets around the world are feeling the impact of losing the fiscal and monetary stimulus packages introduced after the financial crisis to prevent deep recessions. In the UK, for example, VAT has returned to 17.5% and the Bank of England has put its money printing programme on hold.

These two factors - the withdrawal of economic stimuli and sovereign debt fears in Europe - have combined to cause a temporary loss of confidence among investors. Whether this represents a healthy correction in an overextended bull market or another leg of the long-term bear market phase we have been in since 2000 is unclear at present.

Either way, such periods of volatility can offer opportunities for long term investors.

Part of that involves ensuring that investor capital is protected as much as possible, perhaps through holding defensive equity stocks offering a stable dividend. This can be more risky than holding cash, but stocks tend to offer higher yields to compensate for the higher risk of holding them. In a climate of low interest rates and relatively low inflation, companies that can offer a robust income yield look attractive to us. We also like the option of being able to hold gold as an insurance policy against future inflation.

Investors should also consider the value of averaging in market exposure using regular savings schemes to aim to mitigate some of the effects of volatility, rather than attempting to time the market.

While markets often go too far in one direction or another, this can create opportunities for fund managers to buy good quality shares on attractive valuations.

In this environment, we believe many of those opportunities are to be found among world class companies with strong balance sheets, overseas earnings and attractive growth prospects in emerging markets. While the West has suffered acutely from over-indebtedness and muted growth, developing countries such as China and India have relatively low household borrowing and continue to produce impressive GDP growth due to changing demographics and rising consumerism.

It is also worth noting that while sovereign debt concerns dominate news flow at present, prospects for many companies look attractive to us. For example, in the first quarter of this year, 70% of companies in the S&P 500 reported results that were ahead of expectations.

At Jupiter, our approach remains to invest in high quality companies with solid balance sheets that have the ability to grow in a difficult environment. Our experienced stock-pickers work hard to identify those companies they feel can do well for investors over the medium to long term and emerge from this latest period of uncertainty in stronger positions than they entered it.

Please note that past performance should not be seen as a guide to future returns.  The value of an investment and the income from it may fall as well as rise.

NOTE

Jupiter Unit Trust Managers Limited (JUTM) and Jupiter Asset Management Limited (JAM) are both authorised and regulated by the Financial Services Authority and their registered address is 1 Grosvenor Place London SW1X 7JJ. They are both subsidiaries of Jupiter Investment Management Group Limited and the group is collectively known as "Jupiter". Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given.

The above commentary represents the views of the Fund Manager at the time of preparation and may be subject to change and this is particularly likely during periods of rapidly changing market circumstances. Their views are not necessarily those of Jupiter and should not be interpreted as investment advice.