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March 24, 2015, 10:54 a.m. EDT

Why you should be buying, not selling, Germany

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About Nicholas A. Vardy, CFA

Nicholas A. Vardy is Chief Investment Officer at Global Guru Capital, a fee-only, SEC-registered investment-advisory firm where he manages money for high-net-worth clients. Vardy is also the editor of three investing and trading services at NicholasVardy.com. He appears regularly on the Fox Business Network and CNBC Asia, and is a highly-rated speaker at investment conferences around the globe.

Nicholas regularly contributes his market views on his company blog. You can also follow Nicholas on Twitter @NickVardy or email him at nvardy@globalgurucapital.com.

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By Nicholas A. Vardy, CFA

Just over a month ago, I appeared on the Fox Business Network and had the audacity to recommended that U.S. investors invest in Europe.

I argued that the combination of superior earnings growth, the collapse of the euro, and the launch of quantitative easing (QE) by the European Central Bank (ECB) made betting on Europe — and, in particular, Germany — a no-brainer.

The anchors greeted my comments with thinly veiled skepticism.

After all, they pointed out, Europe was on the verge of bailing out Greece's new Marxist government. And if Greece weren't bailed out, a "Grexit" — Greece's exit from the euro — was almost certainly in the cards

Fast forward one month, and Germany is the top-performing major stock market on the planet. The German DAX closed above 12,000 for the first time this week, and is up a whopping 21.35% in 2015. That compares with a U.S. S&P 500 Index that has barely eked out a 1.93% gain.

Once you hedge out the currency risk, Germany is the single-best-performing stock market this year among the 46 I track on a daily basis at my firm Global Guru Capital.

No wonder flights to London are suddenly chock full of U.S. investors looking for European money managers as they reduce their bets on the U.S. market.

And that shift away from the U.S. stock market has turning into a tsunami.

The Financial Times reported this week that European equity funds attracted $35.6 billion so far in 2015, even as $33.6 billion has flowed out of U.S. equity funds over the same period, according to data provider EPFR.

The 'Draghi Effect' and Europe's QE

So how did European — specifically German — stocks suddenly get so hot?

Well, last week, the ECB launched its QE program, right on schedule. President Mario Draghi committed the ECB to buying €60 billion per month of debt, thereby expanding the bank's balance sheet by €1.1 trillion between now and September 2016. And as Mark Twain supposedly said: "History does not repeat itself, but it rhymes."

Having seen how QE propped up U.S and Japanese markets over the past few years, investors had a pretty good idea what QE would mean for Europe's stock markets. As if on cue, the German DAX broke out of a year-long trading range to the upside on Jan. 22 — the very day the ECB announced its QE program.

Germany: The king of the eurozone

The launch of Europe's QE program is, of course, the easy explanation for Germany's current bull run. At the same time, Europe's fundamentals — and in particular, Germany's — are a much bigger factor than you might think. Not that you're likely to give much thought to Germany at all.

Despite being the fourth-largest economy in the world, and the largest economy in Europe, Germany has a remarkably low profile among U.S. investors. Although your local Walmart is bursting at the seams with items "Made in China," it is Germany that is the world's export champion .

It turns out that 81 million Germans generate about as much value in exports as do 1.36 billion Chinese. In fact, Germany's current-account surplus hit €215.3 billion in 2014 up from €189.2 billion in 2013.

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