EU stocks may become a star performer in 2015

EU is in a total mess and Greece is on the verge of collapse again. So why I'm becoming bullish for the EU stocks now? Well, this is one of the secrets of successful investing: the stock market is a forward discounting machine. It usually predicts what is going to happen in the next 6-12 months and then factor in all the known positives or negatives for stocks. As such, the stock market has likely already discounted the messy situation in EU and if there are any positive factors emerging, the stock market will respond very positively as well. There are at least three factors that will support the region: the ECB, a cheap euro currency and low oil prices.

• ECB President Mario Draghi has hinted many times that the central bank could introduce further stimulus in early 2015 and even start a bond purchasing program. There is only one critical obstacle for Draghi to start the QE: Germany. But I think there is no way that EU can avoid the QE. It is not if but just when. The mantra is ‘Don’t fight the ECB’. It is likely the ECB will inject €1,000 billion and to add sovereign bonds to its buying program. If this happens, there will be so-called asset bubble as what has happened in the US when the FED started QEs. Stocks will typically be doing very well during QEs.
• One thing for sure will happen with QEs is the weakening currency; in this case it is Euro. The long-term readers should know my stance on Euro very well. The most recent prediction I made in Aug 2014 was that Euro could decline to 1.20 in exchange to the US$. Well we have got that by now in just 4 months. When the EU QE starts, Euro will likely go down further. A weakening Euro will be great for their exports, which can support their economy.
• The last but not least is the sharp decline of the oil prices. Needless to say, a cheap oil is good in many ways for the economy: lower energy prices will immediately bring more cash for consumers, allowing them to buy more goods to spur growth. In addition, companies can substantially reduce their cost, which will increase their profit margins and improve their earnings.

These to me are very bullish factors for the EU stocks which are much cheaper than those in the US. If you also believe so, two things you may consider: buy EUO if it comes down in the next few weeks or months. This will make you money for further weakening Euro. Buy HEDJ, an EU stock ETF which also hedges against the risk of weakening Euro. If I'm right, these two will be doing great in 2015.