Short term investment ideas – December 2015

The most important date for investors, in the month of December, must be today week, the 3rd of December. At its October meeting, the ECB expressed concern on inflation and hinted at further Quantitative Easing. As a result most Market analysts expect further easing to be announced at next week’s meeting.

An extension of the size and duration of the QE program is most likely. This may have a significant impact on European investment assets. The following ideas offer investors an opportunity of significant gains should expectations materialize.

Of course the opposite is also true. If the ECB holds back any further QE or does not meet market expectations the negative impact on the equity prices will be significant.

European Equities

The increase in money supply will end up nowhere if not in property and the equity market. European equities will be the move quickly if additional support is announced. As an indicator, European equities increased by 26 percent in the weeks that followed the first QE announcement last January.

My top preference would be the German DAX. Germany’s export oriented companies will gain a significant boost from QE and from the consequent devaluation of the Euro. Investors with a taste of additional risk may opt for the DEL2 ETF which leverages the performance of the DAX Index.

European Periphery

These countries benefit mainly from the bond repurchase program which is expected to continue depressing yields. Equities in these countries will likely benefit as well. Italy is probably best positioned to gain from QE. And index which replicates the performance of Italian stocks (FTSE MIB) may be considered.

European Autos

The European Auto sector is perfectly placed to benefit from an increase in QE. German Automakers would be top of the list due to the exposure into the US and Asian markets.

Volkswagen is a risky proposition due to fallout from their emissions scandal. Thus it is best avoided. Renault also seems to be getting dragged into the emissions debate, thus risk is somewhat heightened, as would be the potential return. Renault at this stage exhibits double risk. The price is depressed because of emission concerns and because of shareholder reorganization. On the other hand there is significant upside potential due to increasing sales and obviously QE. BMW and Daimler appear best placed to profit from the effects of QE

Eurodollar

Finally dollar holding will benefit form a weaker Euro. Thus any investment in dollars or holdings in cash will appreciate.