While the U.S. market is being roiled by fears that our economy is slowing, Europe is faring surprisingly well despite a report that there was a bit of deflation in September. Data shows prices actually fell by 0.1% in the month, though if volatile energy prices are excluded, inflation is was at a 1% annual rate. And Europe’s GDP is weak – at an annual rate less than 0.5%.

Yet despite Europe’s troubles, its stock market is doing better than ours. The American economy grew by 0.6% in the first quarter and 3.9% in the second, and our own Dow Jones Industrials index is down 9.8% so far this year. The Euro Stoxx 50 index, which tracks European blue chips, has declined just 1.9%. In fact, most of the European bourses are performing better than our own, despite the growth disparity. So, what’s the difference?

While our own Federal Reserve has effectively halted its program of quantitative easing (QE) – buying primarily government bonds in the market to boost asset prices – the European’s own version QE is still going strong. The European Central Bank (ECB) has been buying $67.37 billion) of assets a month since March, in a bid to boost inflation in the region. ECB chief Mario Draghi has also said that if the current level of QE doesn’t do the trick and European inflation fails to reach its 2% target by 2017, the bank could boost or extend the program.

While a lot of economists don’t think QE is a particularly good idea, stoking bad inflation and creating asset bubbles, experience shows us that stock investors love it. Between November 2008 and October 2014, which covered three rounds of easing here in the United States, both the S&P 500 and the Dow more than doubled in value despite lackluster growth in the real economy. There’s little reason not to expect the same effect in Europe.

At the same time, European stocks were trading at multi-year lows just a year ago, so it wasn’t going to take much to get them moving higher. At the same time, the ECB has been maintaining the region’s benchmark interest rate at a record-low 0.05%, essentially forcing investors into the stock market and boosting prices. All of that should sound very familiar.

Our own experience is a big reason why we remain positive about European stocks, with several in our portfolios.

In particular, banks such as Banco Santander and HSBC Holdings will continue to catch a tailwind from low interest rates, widening the spread on what they pay for deposits and the interest charged on loans, particularly if QE does successfully boost the economy. Over the period of American QE, the value of the KBW Bank Index, which tracks the national money center banks and regional banks listed on the New York Stock Exchange, skyrocketed upward by nearly 160%.

While Banco Santander (NYSE: SAN) has yet to feel the full effect of European QE, the Spanish bank has an impressive history of profitability. Even during the worst of the crisis in 2008 when the Spanish housing market imploded, its wide footprint across Latin America helped it to remain profitable. Now that the worst of the crisis is past for Spain, add in the tailwind of QE and Banco Santander’s outstanding yield of 11.2% should be secure.

British HSBC (NYSE HSBC) has things a bit rougher, with about 40% of its revenue coming from Asia. That said, it is the fifth largest bank in the world, so its scale is tough to match. Once growth picks back up, it will be set to fly.

So far now, given the potentially favorable tailwind of QE, we’re going to keep looking for opportunities in Europe, particularly in the wake of any sell-off.

Portfolio Updates

Vodafone (NSDQ: VOD) announced it has ended talks about trading assets with Europe’s largest cable company, Liberty Group.  Vodafone had previously announced it was in talks with Liberty in June leading many analysts to speculate a potential merger of the two companies, forming a dominating European mobile and fixed line company worth an estimated $130 billion. 

Negotiations were terminated due to disagreements over the valuations of assets as the two firms discussed various potential deals. Vodafone is looking to bolster its European business which has been threatened by increased competition.  While negotiations are over, the two companies did not leave out the possibility of renewing talks later.

Shares of Vodafone fell 5% and currently trade at 9% above its 52-week low. Shares of Vodafone remain a Buy up to $39.