While risks run high, there are plenty of opportunities for canny financial advisors to make money for wealthy clients in the embattled Eurozone market—if they know where to look.

First, the risks: Institutional investors have been chortling for weeks over their latest acronym PIGS, for Portugal, Ireland, Greece and Spain, all countries saddled with massive deficits. And PIGS doesn’t even include one of the biggest offenders, the U.K., which at 12% of gross domestic product is the highest among all 27 members of the European Union and now has to figure out how to fix the problem after national elections resulted in a hung parliament.

This maelstrom of debt is an obvious problem for fixed-income investors in the Eurozone, but the fallout could hurt U.S. fixed income investors, says John Lonski, the economist for Moody’s capital markets group. The impact could be dramatic: He points out that the U.S. market was adversely affected by what was happening in Europe in 1998. That summer caused a decline in the U.S. market of 20%, and at the same time a pronounced widening of spreads between corporate bonds and U.S. Treasury bonds.

This time around, Lonski postulates that investors could start drawing some unfortunate parallels between Greece’s urgent need for a $140 billion bailout and what’s happening in some of the U.S.’s more beleaguered states. “The problems in Europe could heighten worry about similar issues state governments are facing in the U.S. with their budgeting problems,” he says. “Credit-default-swap spreads for some U.S. state and local governments are close to where European sovereign credits were not so long ago. Until there’s a satisfactory conclusion to the European crisis, U.S. bonds will be under pressure.”

The U.S.’ largest equities are no safe harbor either. “Half of S&P 500 companies’ revenue comes from non-U.S. sources,” says Stephen Bigger, managing director of global equity research at Standard and Poor’s (S&P). ‘In a situation where a good part of that is coming from the Eurozone, a much stronger dollar is only going to hurt repatriated earnings,” as the weakened Euro is exchanged into the now-strong dollar.

S&P also expects a market correction of between 7% and 10% at some point, “the sooner the better,” Bigger says. S&P is currently recommending an allocation of 45% U.S. equities, 15% non-U.S. equities, 25% bonds and 15% cash. “That’s a little high because of the risk,” Bigger says. “The potential for a market correction is there, so we want to keep some powder dry.”
However, despite the risks in Europe, there is a potential to make money. S&P is currently underweight in healthcare, telecom and utilities, but it’s overweight in technology, materials and energy, Bigger says. European equities are going for a song, too, adds Jerry Webman, OppenheimerFunds’ chief economist. “Equity investors are buying some great companies for 15% cheaper than they were a few weeks ago,” he says.

Oppenheimer portfolio managers are focusing on companies that meet one or more of the following criteria: European companies that do substantial business in emerging markets; companies that have some emphasis on aging (hearing aid manufacturers have been hot lately); and European technology companies, particularly in biotech. However, Webman says that investors shouldn’t bank on European consumers to drive demand in the near future. “We don’t yet know how those economies will pick up,” he says.

In short, debt investors need to hedge their Euro exposure—Oppenheimer’s marker debt group is underweight in the currency—but equity investors can pick up some bargains, depending on how and where a company generates revenue. “Do your homework and possess intestinal fortitude,” Moody’s Lonski says. “It’s this type of investment environment where money is made.”