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) saw net capital inflows, marking the first such event since late February. This period coincided with the escalation of the trade conflict between the US and Iran, which significantly undermined investors' risk appetite. However, current data points to a notable shift in market sentiment.
The return of investments to European assets is not a coincidence but the result of several fundamental factors. Strong corporate earnings and lower energy prices have made the Old Continent an attractive haven for capital seeking refuge from the volatility prevailing in the US tech sector. Investors, weary of the swings in the semiconductor market, have begun to rebalance their portfolios in favor of more stable and undervalued markets.
Return of Interest in Europe
A key driver has been the sharp improvement in corporate performance. Companies in the Stoxx Europe 600 index are poised to report a 22% year-on-year profit growth for the second quarter — the best result since 2022. The banking sector's achievements look particularly impressive. BNP Paribas increased its quarterly profit by a third, while UBS posted a 17% rise, reaching record levels thanks to successful trading activity.
BlackRock reported that its products focused on European equities attracted $4.4 billion in July. This is a clear signal of funds flowing from risky assets, such as chipmaker stocks, into more conservative instruments. The sell-off in global semiconductor stocks prompted investors to seek regions less dependent on the technology cycle. Europe, with its strong banking and industrial sectors, has become one of the main beneficiaries of this process.
Forecasts and Risks
Optimism is also reinforced by the actions of major investment banks. UBS raised its year-end forecast for the Stoxx 600 from 630 to 690 points, implying a potential upside of about 5% from current levels. Goldman Sachs analysts, in their August recommendations, are also positive, predicting significant gains in the shares of British green energy developer Ceres Power (+168%) and German defense contractor Rheinmetall (+102%) over the next 12 months.
The Stoxx 600 index has risen 10.7% since the start of 2026 and hit a fresh 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 record levels, confirming the broad nature of the rally.
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 serve as a reminder that the current rise may be excessive, especially amid persistent geopolitical risks and uncertainty in the global economy.
My view: The inflow of capital into European ETFs is an important marker of shifting investment priorities, but it should not be seen as a guarantee of a long-term bullish trend. The market is clearly re-rating European assets after a period of stagnation, and fundamental indicators confirm this. Nevertheless, I advise investors to remain cautious: current levels already price in a lot of positivity, and any negative macroeconomic surprise could trigger a correction, especially given the highly polarized forecasts from leading banks.