As global technology stocks, particularly in artificial intelligence (AI) and semiconductors, experience increased volatility, European stock markets are emerging as an attractive alternative investment. With oil prices stabilizing after a surge due to the U.S.-Iran conflict and European companies reporting stronger-than-expected earnings, investment funds previously focused on tech and AI are shifting towards Europe.
According to the Financial Times on September 9, financial analytics firm FactSet projects that profits for companies in the Stoxx Europe 600 index will increase by 22% in the second quarter compared to the same period last year, marking the highest growth rate since the market recovery following the COVID-19 pandemic in 2022.
Marina Zavolok, a European equity strategist at Morgan Stanley, described this earnings season as "remarkable," noting that "very positive results are coming from almost all sectors."
Strong earnings have also bolstered the European stock market. The Stoxx Europe 600 has recently set multiple record highs, with major indices such as Germany's DAX, the UK's FTSE 100, France's CAC 40, and Spain's IBEX also reaching new peaks.
Capital inflows have resumed. Bloomberg reports that European equity exchange-traded funds (ETFs) recorded their first monthly net inflow since the onset of the U.S.-Iran conflict in late February. BlackRock's European equity products attracted $4.4 billion during the same period.
Particularly, last month's sharp decline in global semiconductor stocks has highlighted the appeal of diversifying investments in the European market, which is less affected by the volatility of tech and AI stocks. Zavolok analyzed that the strong performance of European companies is further increasing the demand for diversified investments in European equities.
Banking stocks are leading the rise in the European market. BNP Paribas reported a nearly 33% increase in second-quarter profits, while UBS saw a 17% rise, achieving record highs. This year, the Stoxx Europe Bank Index has risen over 21%, significantly outpacing the 11.5% increase in the Stoxx Europe 600. Semiconductor companies like ASML and Infineon have also raised their revenue forecasts for the year.
The easing tensions in the Middle East are also boosting investor sentiment. Concerns about the European economy, which heavily relies on energy imports, grew as oil prices surged due to the U.S.-Iran conflict and the effective blockade of the Strait of Hormuz. However, recent efforts by both countries to seek an end to the conflict have led to a decline in oil prices to below $90 per barrel.
Beata Mantey, head of European equity strategy at Citi, stated that with the reduction of tensions in the Middle East, Europe appears to have avoided the worst-case scenario of soaring energy prices, adding that "global investors are beginning to prefer Europe again." She noted that the European stock market is being highlighted as a so-called 'anti-AI investment,' attracting funds looking to diversify away from AI-centric portfolios.
However, some analysts caution that it is too early to consider the capital shift towards European stocks as a clear trend. The funds flowing into European equities have not yet reached the peak levels recorded earlier this year, and investments remain concentrated in certain sectors, such as banking.
Emmanuel Maconga, a European equity strategist at Barclays, assessed that until early July, the funds directed towards Europe were more reflective of capital exiting the U.S. rather than genuine interest in Europe itself. However, as earnings reports continue, he noted that "fundamentals supporting market growth are being confirmed beyond simple diversification," indicating that investors are once again turning their attention to the European market.
* This article has been translated by AI.
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