European ETFs recorded capital inflows for the first time in five months: a trend reversal or a temporary correction?
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, which made the market particularly sensitive to geopolitical risks. The current reversal signals a shift in sentiment among institutional investors, who appear to be beginning to reassess their asset allocation strategies.
The return of capital to the European market is not a coincidence but the result of a combination of factors. Strong corporate earnings and lower oil prices have created a favorable backdrop for European assets, which are now perceived as a more reliable alternative to volatile tech giants. Investors, weary of turbulence in the semiconductor sector, are actively seeking refuge in more stable and undervalued markets.
Key Drivers: Earnings and Capital Flows
BlackRock reported that its products focused on European equities attracted $4.4 billion in July. The asset manager interprets these flows as a clear sign of a shift of funds from chipmaker stocks to less risky assets. The sell-off in the global semiconductor sector pushed investors toward regions less dependent on the technology cycle, and Europe has become one of the main beneficiaries of this process.
Corporate results have only reinforced this trend. Companies in the Stoxx Europe 600 index are poised to show a 22% year-on-year increase in second-quarter earnings — the best figure since 2022. Banks stand out in particular: BNP Paribas increased quarterly profit by a third, while UBS delivered a record result, lifting the figure by 17%. Both banks owe their success to active trading activity, which points to a high level of business dynamism in the region.
Forecasts and Diverging Opinions
Against the backdrop of positive data, analysts are revising their targets. UBS raised its year-end forecast for the Stoxx 600 from 630 to 690 points, implying upside potential of about 5% from current levels. Goldman Sachs, in its August recommendations, also shows optimism, forecasting a 168% rise in shares of British green energy developer Ceres Power and a 102% gain in German defense contractor Rheinmetall over the next 12 months.
Since the start of 2026, the Stoxx 600 index has risen 10.7% and hit a record high, climbing to 663.4 points. Germany's DAX, the UK's FTSE 100, France's CAC 40, and Spain's IBEX have also reached all-time highs. However, not everyone shares this optimism. Analysts at Societe Generale expect the Stoxx 600 to decline to 600 points, while TFS forecasts a 9% drop to 585 points.
My view: The inflow of capital into European ETFs is an important signal, but one should not forget the lingering risks. Positive earnings and cheap valuations make Europe attractive, but bearish forecasts from Societe Generale and TFS remind us that the market may be overheated in the short term. Investors should view the current moment as an opportunity for diversification, not as a guaranteed signal for unrestrained growth.