European ETFs recorded capital inflows for the first time in five months: a trend reversal or a temporary lull?
July was a turning point for the European exchange-traded fund (ETF) market. For the first time since late February, when the escalation of the conflict between the US and Iran triggered massive capital outflows, investors have again begun to increase their positions in European assets. This is a signal that cannot be ignored.
The return of interest in the Old World looks quite natural. Strong corporate earnings and lower energy prices have made European markets an attractive haven for those seeking refuge from turbulence in the US technology sector. We are witnessing a classic rotational shift: capital is moving out of overheated and volatile semiconductor industry "blue chips" into more conservative and undervalued markets.
Key drivers of capital return
The most telling example is BlackRock. The asset management company recorded inflows into its products focused on European equities of $4.4 billion in July. This is not just a number, but direct confirmation of a shift in sentiment among institutional investors. The sell-off in global chipmaker stocks pushed them to seek regions with less dependence on the technology cycle.
The fundamental basis for this reversal has also strengthened. Companies in the Stoxx Europe 600 index are showing impressive profit growth: second-quarter earnings are expected to rise 22% year-on-year — the best result since 2022. Banks stand out in particular. BNP Paribas increased quarterly profit by a third, while UBS posted a record result, rising 17% thanks to successful trading activity.
Bullish sentiment and cautious forecasts
Investment houses are revising their targets upward. UBS raised its year-end forecast for the Stoxx 600 from 630 to 690 points, implying growth potential of about 5% from current levels. Goldman Sachs also shows optimism in its August recommendations, forecasting, for example, a 168% rise in shares of British green energy developer Ceres Power and a 102% gain for German defense group Rheinmetall over the next 12 months.
Market dynamics confirm this positivity. The Stoxx 600 index has risen 10.7% since the start of 2026 and hit an all-time high, climbing to 663.4 points. Germany's DAX, Britain's FTSE 100, France's CAC 40, and Spain's IBEX have also reached record levels.
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. This reminds us of the fragility of the current equilibrium.
My view: The rotation of capital into Europe is not just a short-term trend, but a structural shift driven by a reassessment of risks in the global technology race. However, investors should exercise caution: the high concentration of growth in the banking sector and defense industry makes the market vulnerable to macroeconomic shocks. Diversification remains a key principle, and European ETFs are just one of the tools to achieve it.