Nothing's hotter than investing internationally right now. But if you're looking for great values in an international market that still has the potential for modest long-term growth, there's one part of the world that hardly anyone is talking about at the moment.

Lately, when you hear about international investing, most people immediately gravitate to the recent explosive moves among the emerging markets of China, Brazil, and India. Before anyone was investing in those countries, though, the developed markets of western Europe combined Old World stability with a cosmopolitan attitude toward business and investment. Even though Europe faces plenty of challenges right now, investors looking for good value abroad should definitely take a closer look.

The contrarian approach
There's good reason why most investors are focusing squarely on markets other than Europe right now. While emerging markets offer access to billions of potential consumers, many of whom have never enjoyed the products that companies hope to sell to them, European markets suffer from adverse demographics. Population growth is virtually nonexistent in Europe, and it may easily drop to negative levels in the coming years, pressuring European companies in their home markets as total consumption falls.

Those headwinds are evident in projections of economic growth. Even though most people think the U.S. economy has been horrid recently, GDP in the Euro zone has fallen even further, with projections for the full 2009 year of a 3.8% decline versus the U.S.'s 2.5% drop. Moreover, the expected rebound next year will likely be muted in Europe, with estimates of 1.2% growth coming in at less than half the U.S. growth rate. In contrast, India and China have sustained substantial growth, which is expected to continue. Brazil is seen rebounding strongly as well.

Looking for value
Europe particularly distinguishes itself with its attractive stock valuations. Although the major emerging markets are all up 65% or more so far this year, most European markets have seen a much more restrained rebound. That makes Europe a likelier place to find good international value stocks, especially for those hoping to protect themselves from a possible correction that could grow into a sustained market downturn.

For instance, take a look at where some popular value-based international funds are investing their money right now:


5-Year Average Ann Return

Assets Invested in Western Europe & U.K.

Holdings Include ...

Vanguard International Value (VTRIX)



Sanofi-Aventis (NYSE:SNY), Vodafone (NYSE:VOD), Eni

Dodge & Cox International Stock (DODFX)



Novartis (NYSE:NVS), Nokia (NYSE:NOK)

Oakmark International I (OAKIX)



Allianz, UBS

Source: Morningstar.

Now bear in mind that those percentages should be relatively high, given that Western Europe and the U.K. make up a big share of developed markets overall. The key, though, is that these funds are not looking very closely at high-growth areas like the emerging markets, favoring instead well-established European companies whose shares didn't rise so precipitously following the aftermath of the worldwide market meltdown.

Challenges abound
You shouldn't, however, get the idea that Europe is free and clear of all the trouble in the global financial markets over the past year. Many European banks had to receive huge bailouts from their home governments to avoid collapse. Now, financial institutions are facing the same scrutiny from potential government regulation that has affected U.S. companies such as Citigroup (NYSE:C), Bank of America (NYSE:BAC), and AIG (NYSE:AIG). In particular, the U.K. has faced some of the same currency pressures that have plagued the U.S. dollar.

Nonetheless, the euro's strength is just another reason to take a look at Europe. If you're convinced the dollar is doomed, then European stocks could help you preserve your portfolio's purchasing power.

If you've let the buzz over emerging markets blind you to the opportunities that are available elsewhere, you're making a big mistake. Don't wait until everyone else realizes that they've missed out on a chance to pick up great stocks at reasonable prices. European stocks have something to offer, and they may deserve a place in your portfolio.

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Fool contributor Dan Caplinger dreams about hopping on a plane to Europe one of these days. He doesn't own shares of the companies mentioned in this article. Nokia is a Motley Fool Inside Value selection. Novartis is a Motley Fool Global Gains recommendation. Try any of our Foolish newsletters today, free for 30 days. If you ever travel around the world, the Fool's disclosure policy wants to tag along with you.