Mark Dampier: Investors can steer clear of European dramas

There has been such a rollercoaster ride in politics and the stock market lately I thought I would look at the general picture this week. The election may have been at the forefront of our minds but, as far as markets were concerned, the most important events were in Europe.

Greece, an economy representing less than 3 per cent of the eurozone, caused a dramatic sell-off as their imprudent attitude to borrowing and spending came home to roost. A rebound occurred on Monday after the EU cobbled a bailout deal together. However, all this has really achieved is some breathing space for southern Mediterranean countries to get their act together. I am not convinced they will and I won't be surprised if problems flare again.

This should not put you off investing in Europe. There are many world-class companies that will prosper regardless of the debt situation in the peripheral European nations. Indeed, if the crisis leads to a weaker euro it would make many European manufacturers and exporters more competitive, which should have a positive effect on their share prices; a fund such as Jupiter European should benefit.

As far as the UK elections are concerned, I don't believe politics necessarily plays a major role in the stock market – other than providing the odd short-term buying opportunity. For investors, the most important impact politicians have is on taxes, which will rise in this country. Those planning to sell large amounts of shares or second homes should certainly pay attention in the coming weeks, and it has never been more important to make use of tax shelters such as Isas. I actually feel like we are coming full circle. When I started my career in the early 1980s, we had tax rates of 60 per cent and a 15 per cent tax surcharge on dividends. Proper tax planning was absolutely essential. Gradually, much of this eased and investors could concentrate on what was important: whether an investment was good or bad. I fear we are now back to where I started and attention to tax planning will be vital.

One thing the last government did (much to my surprise) was increase the Isa allowance to £10,200 per year per person. If you are lucky enough to have that much spare capital you should consider using this allowance every year. For some higher-rate taxpayers the possible alterations to pension tax relief would seem to make them less worthwhile after 2011. However, the changes to capital gains tax plus any future changes in the flexibility of pensions (early access and doing away with the compulsory annuity at 75) could mean the pendulum swings back to favour pensions. In any case, I would not be surprised to see the state retirement age rise to 70 at some point, so careful planning of provision through pensions or investments is necessary if you aim to retire earlier.

The debt problems of southern Europe and the possibility of interest rate rises in China continue to linger over the stock market. However, we are in great danger of ignoring the opportunities. Equities in the UK looked particularly cheap even before the recent falls in the market. To take advantage I would suggest you take a look at some good quality UK funds. In particular, Clive Beagles' JO Hambro UK Equity Income, which yields an income over 4.5 per cent, Standard Life's UK Equity Recovery Fund managed by David Cumming, and Old Mutual's UK Dynamic Fund, which is being managed by Ashton Bradbury.

Many people are still bearish, which I believe is a good sign for future progress in the stock market. Unless we see one of those really big events (that no one can really forecast) the FTSE 100 could reach 6,000 by the end of this year. So don't despair, things aren't necessarily as bad as you might think from reading the press.