European ETFs recorded capital inflows for the first time in five months: a trend reversal or a temporary respite?
In July, European exchange-traded funds (ETFs) recorded net capital inflows for the first time since late February. This period coincided with the onset of the escalation of the conflict between the US and Iran, making the current reversal particularly telling. Investors who had previously moved into safe-haven assets are beginning to return to the European market, and this is a signal that cannot be ignored.
The Return of Risk Appetite
The key driver has been a combination of strong corporate earnings and lower oil prices. European companies are demonstrating resilience, making their stocks an attractive alternative for those seeking refuge from the volatility of the US technology sector. Particularly telling is that BlackRock reported inflows of $4.4 billion into its products focused on European equities. This is direct confirmation that institutional money is flowing from overheated chips into more stable assets.
The sell-off in global semiconductor stocks in July only accelerated this process. Investors are actively seeking regions with less dependence on tech giants, and Europe currently looks like one of the main beneficiaries of this shift. Strong corporate results have only reinforced the trend: companies in the Stoxx Europe 600 index are poised to show a 22% year-on-year profit growth for the second quarter — the best result since 2022.
Banks — the Growth Engine
Financial institutions stand out in particular. BNP Paribas increased its quarterly profit by a third, while UBS posted a 17% gain, reaching a record level. Both results are driven by successes in trading operations, indicating high market activity and a favorable environment for the banking sector.
Optimism is also supported by forecasts. UBS raised its year-end target for the Stoxx 600 from 630 to 690 points, implying a growth potential of about 5% from current levels. Goldman Sachs analysts in their August recommendations are also positive, forecasting a 168% rise for British green energy developer Ceres Power and a 102% gain for German defense contractor Rheinmetall over the next 12 months.
The Stoxx 600 has risen 10.7% since the start of 2026 and hit a new all-time high this month, climbing to 663.4 points. Germany's DAX, the UK's FTSE 100, France's CAC 40, and Spain's IBEX have also reached historical peaks.
The Flip Side of the Coin
However, not all analysts share this optimism. Specialists at Societe Generale expect the Stoxx 600 to decline to 600 points, while TFS forecasts a 9% drop — to 585 points. These warnings remind us that the current growth may be overvalued, especially if the macroeconomic situation deteriorates.
My analysis: The return of capital to European ETFs is an important marker of a shift in sentiment, but I would not rush to call it a sustainable trend. Too many factors — from geopolitics to ECB monetary policy — could reverse the flow in the opposite direction. Nevertheless, the current dynamics give European equities a serious advantage over their US counterparts, and investors should take a close look at this market as a diversification tool.