European ETFs recorded capital inflows for the first time in five months: a trend reversal or a temporary respite?
July became a landmark month for the European stock market: exchange-traded funds (ETFs) focused on European equities recorded net capital inflows for the first time since late February. This period coincided with the escalation of the conflict between the US and Iran, which dramatically changed investors' risk appetite. However, the current dynamics point to deeper structural shifts, not just a short-term correction.
The key driver of the capital return was strong corporate earnings and lower energy prices. The European market, traditionally considered a "safe haven" compared to the volatile US technology sector, has again attracted the attention of institutional players seeking protection from sharp fluctuations in chipmaker stocks. This is confirmed by data on the flow of funds from high-risk assets into more conservative European instruments.
BlackRock records record demand
Asset manager BlackRock reported that its products focused on European equities attracted $4.4 billion in July. The company views this as a clear sign of shifting priorities: investors prefer less volatile assets, shunning overheated tech giants. The sell-off in global semiconductor stocks last month only accelerated this process, channeling funds into regions less dependent on the technology cycle.
The fundamental basis for this optimism looks solid. 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 stand out in particular: BNP Paribas increased its quarterly profit by a third, while UBS's figure rose by 17%, reaching a record level. Both financial giants owe their success to active trading operations.
Forecasts: optimism vs. caution
Investment houses are divided in their views on the future trajectory. UBS raised its year-end forecast for the Stoxx 600 from 630 to 690 points, implying a growth potential of about 5% from current levels. Goldman Sachs also remains optimistic, predicting significant gains for select European stocks, including British green energy developer Ceres Power (+168%) and German defense contractor Rheinmetall (+102%) over the next 12 months.
The Stoxx 600 index itself has gained 10.7% since the start of 2026 and hit an all-time high this month, rising to 663.4 points. Germany's DAX, the UK's FTSE 100, France's CAC 40, and Spain's IBEX also reached record levels. However, not everyone shares this enthusiasm: analysts at Societe Generale expect the Stoxx 600 to decline to 600 points, while TFS forecasts a 9% drop — to 585 points.
My analysis: The current inflow of capital into European ETFs is not just a reaction to market conditions but a strategic shift. Investors are tired of the endless race for American tech giants and are seeking diversification with adequate valuations. However, I would not discount the risks: if third-quarter earnings disappoint and geopolitical tensions persist, we could see a rapid reversal. For now, the market clearly favors "old Europe" with its banks and industry over the US "new economy."