European ETFs recorded capital inflows for the first time in five months: what is behind the reversal
In July, European exchange-traded funds (ETFs) recorded net capital inflows for the first time since late February. This is a landmark event, given that it was in February that the escalation of the conflict between the US and Iran began, which triggered a massive outflow of funds from continental platforms. Now we are witnessing a trend reversal, and this, in my view, signals a shift in sentiment among institutional investors.
Return of risk appetite
The key driver was a combination of strong corporate earnings and lower energy prices. European companies, especially in the banking sector, delivered impressive results, making the region more attractive amid volatility in the US technology sector. Investors, weary of sharp swings in chipmaker stocks, began seeking more defensive assets, and Europe offered exactly that.
BlackRock is a telling example: its products focused on European equities attracted $4.4 billion in July. These are not just numbers — they are direct evidence that large capital views the Old World as a safe haven. The sell-off in global semiconductor stocks only accelerated this process, channeling freed-up funds into regions less dependent on the technology cycle.
Fundamental base and forecasts
Fundamentally, Europe currently looks strong. 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 posted a record figure, raising it by 17%. Both results were driven by successes in trading operations.
Against this backdrop, banks are improving their forecasts. UBS, for example, raised its target level for the Stoxx 600 to 690 points from 630, implying a potential upside of about 5% from current levels. Goldman Sachs analysts are also optimistic, forecasting significant gains in select stocks, including UK-based Ceres Power (+168%) and Germany's Rheinmetall (+102%) over the next 12 months. The Stoxx 600 index has risen 10.7% since the start of the year, hitting an all-time high of 663.4 points, while Germany's DAX, UK's FTSE 100, France's CAC 40, and Spain's IBEX have also reached record levels.
My view on the prospects
Nevertheless, I would not rush to unconditional bullish conclusions. The market remains divided: Societe Generale expects the index to decline to 600 points, while TFS forecasts a 9% drop — to 585 points. The inflow into ETFs is a positive signal, but it reflects capital rotation rather than confidence in long-term growth. Amid persistent geopolitical uncertainty and possible monetary policy tightening, I recommend that investors view European assets as part of a diversified strategy, not as an unconditional priority.