How much capital can migrate to Europe? UBS discusses who benefits

Investing.com -- UBS forecasts a substantial shift in global capital over the coming years, with European equity markets positioned to attract substantial inflows from U.S. assets.

In its base case scenario, the bank expects around €1.2 trillion of investor funds—equivalent to 6% of Europe’s current equity market capitalization—to rotate into European equities over the next five years. This is tied to the expectation that international investors will reverse 60% of the ownership gains U.S. equities have accumulated since 2018.

However, the change will not be immediate. UBS believes that close to 60% of these flows will materialize in 2026 and 2027, translating to roughly €300–400 billion per year. In a more bullish scenario, inflows could reach €2 trillion, while a more cautious view sees €400 billion shifting to Europe.

UBS sees this capital rotation as a structural tailwind for European markets. The bank notes that “there has been a fundamental shift in how international investors view their U.S. equity exposure,” pointing to heightened volatility and risk premia in U.S. markets due to recent policy developments.

As allocations move, cash equity trading in Europe is expected to rise, alongside renewed capital market activity, especially IPOs.

“While we recognise the past 3 years have been littered with forecasts/hopes of an IPO recovery in 6 months’ time, we think this time is different, though we will have to wait for after the summer months to see any evidence of improving activity,” analysts led by Michael Werner said.

According to UBS, European exchanges stand to benefit first. “This rotation has already driven elevated trading activity,” the report notes, with Deutsche Boerse (ETR:DB1Gn) (DB1) and Euronext (EPA:ENX) outperforming the broader market following recent volume spikes.

Flow Traders NV (AS:FLOW) is also highlighted as a beneficiary of increased ETF volumes. Over the past two years, roughly 55% of the company’s revenues came from its European operations.

Meanwhile, public market asset managers are likely to see inflows with a delay, benefitting more from institutional reallocations in the second half of 2025 through 2026. UBS points to Schroders (LON:SDR) and Amundi SA (EPA:AMUN) as well-positioned players in this space.

The bank adds that retail fund and trading platforms, such as IG Group Holdings PLC (LON:IGG) and Nordnet AB (ST:SAVE), may also gain from rising investor sentiment and liquidity.

Longer term, private market asset managers could see operational benefits, with capital inflows supporting exit activity, valuations, and fundraising capacity.