As with most major markets, Europe's stocks fell sharply amid turmoil in the world's credit and banking industries. The contagion in financial markets spread to Europe, as the governments of Belgium, the Netherlands and Luxembourg were forced to partly nationalise Belgian-Dutch group Fortis, while German lender Hypo Real Estate had to secure a credit line from various parties, including the German government, of up to €35bn. The FTSE Europe ex UK index shed 13.0% in sterling,total return terms.Within the portfolio, we reduced our exposure to German industrials, selling out of Porsche, in the face of a deteriorating economic outlook. We did however buy back into BMW with some of the proceeds, believing it had been oversold. We increased our defensive positioning by buying into Dutch food giant Unilever, where we expect a change of management and approach to bring positive results.Elsewhere, we added to our holding in Zurich Financial Services, believing that it will be a beneficiary of the turmoil at US insurer AIG, as the latter's commercial clients seek out greater security.