European ETFs recorded capital inflows for the first time in five months: a trend reversal or a temporary lull?
July marked 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 U.S. and Iran began, these instruments recorded a net inflow of capital. This is a signal that cannot be ignored: investors appear to be reassessing their regional preferences in favor of the Old World.
The return of interest in European assets looks quite natural. Strong second-quarter corporate earnings, combined with lower energy prices, have made Europe a more attractive haven for those seeking refuge from the volatility prevailing in the U.S. technology sector. Funds withdrawn from chipmaker stocks are now looking for new entry points.
Major players set the tone
The flow dynamics into BlackRock products focused on European equities are telling. In July alone, they attracted $4.4 billion. The asset manager interprets this as a clear shift of capital from risky semiconductor assets into more risk-balanced instruments. The sell-off in global chipmaker stocks pushed investors toward regions less dependent on the technology cycle.
The fundamental basis for this reversal is 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 are especially impressive. BNP Paribas increased its quarterly profit by a third, while UBS's figure rose by 17%, reaching a record level. Both giants owe their success to active trading activity.
Forecasts are divided
On the wave of optimism, banks are revising their targets. 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 analysts are also optimistic, predicting 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.
The market is already pricing in these expectations. The Stoxx 600 has risen 10.7% since the start of 2026 and hit an 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.
However, there is no consensus in the market. Specialists at Societe Generale expect the Stoxx 600 to decline to 600 points, while TFS forecasts a 9% drop to 585 points. This divergence of opinions points to a high degree of uncertainty.
My view: the return of capital to European ETFs is not just a statistical spike, but a reflection of a structural shift. Investors are tired of growth concentrated in a few U.S. mega-caps and are seeking diversification at more attractive prices. However, the sustainability of this trend will depend on whether Europe can maintain earnings growth momentum amid a potential slowdown in the global economy and persistent geopolitical risks.