Investors are returning to European equities as a strong earnings season and lower oil prices boost the region's credentials as a hedge against volatile global tech stocks. European companies are on track to deliver 22 per cent year-on-year earnings growth in the second quarter, according to Fact Set data, defying higher energy prices to record their best growth since 2022. That is a "standout season," said Morgan Stanley's European equity strategist Marina Zavolock, adding that earnings have been "really positive across almost every sector."

Bloomberg data shows European stock ETFs saw positive net flows in July for the first time since the US-Iran conflict started in February, while BlackRock said its European equities products saw $4.4bn of inflows in July, described as "evidence of anti-momentum allocations" away from volatile chipmaker stocks. The Stoxx Europe 600 index hit a series of record highs, along with Germany's Dax, FTSE 100, Cac 40 and Ibex. Banks like BNP Paribas and UBS were standout performers, with profits surging on trading revenues. Technology stocks, including chipmakers ASML and Infineon, raised revenue forecasts, while energy stocks also contributed to growth.

An easing of Middle East tensions allowed oil prices to trade below $90 a barrel, boosting Europe's economic outlook. "If Europe can seriously print mid-teens earnings growth in 2026, that's an incredibly strong result," said Hugh Gimber of JPMorgan Asset Management. Beata Manthey of Citi noted that "international investors have started liking Europe again because it is an anti-AI trade." The Eurozone economy grew 0.4% in Q2 despite higher energy prices. Flows remain below 2026 record levels, but strategists see fundamental support for the broadening interest.