The European QE, while beneficial, will have different impact and consequences than the US and the UK style QE. The retail European market is not as well developed as in the US, UK so the main risk asset likely to benefit from a large QE will be real estate. Countries with largest equity markets to GDP like the Netherlands, Belgium, France and Spain will benefit disproportionately from a risk on equity trade. Difference between European QE and US and UK style QE The European QE announced by ECB last week consists of a monthly Euros 60 bn private and public bond buying that will last until at least September 2016. The euro denominated debt purchases will be all along the yield curve between 2 and 30 years maturities and will represent no more than 25% of each issue. The debt purchases will be mutualised, sharing the loss up to 20% and the rest of 80% will stay with the national central banks. Interestingly, the government debt to be acquired by ECB is investment grade only so Greece and Cyprus debt will likely not be considered for this QE round. While both the Fed and the BoE bought back government debt, so in nature the style of the ECB QE is similar, the lack of debt mutualisation across the Euro zone will skew the benefits towards the countries with best fundamentals in 2016 when the QE starts to slow down. In addition, the funding transmission mechanism in the Euro zone does not work quite the same as in the US or in the UK. Lower rates across the euro zone should lower rates for corporates and individuals but we may not see the impact of these rates in the short term and uniformly across the Euro countries.

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