Turbulent AI trading suppresses US stocks! European stocks bucked the trend and strengthened to become a new safe haven for global capital

The Zhitong Finance App learned that recently the global stock market pattern has ushered in a marked split. Against the backdrop of severe turbulence in AI-related transactions impacting US stocks, the European stock market bucked the trend and broke through. Citigroup strategists said that in recent weeks, the European stock market has become the only region in major global markets where risk appetite has improved significantly, mainly due to incremental capital inflows and corporate profits exceeding expectations.

Citibank strategist David Chew said in the report that last week, positions in Europe's major benchmark indices picked up across the board, while indicators in the US market showed a weakening of confidence. In Asia, AI-related concerns have led to significant differentiation in market positions, and the Korean benchmark index has entered a deep bearish zone.

Chew said, “The European Stoxx Index positions remained unusually stable throughout July. This is in stark contrast to the drastic position adjustments in major US indices, which highlights that Europe is relatively limited in terms of AI-related risks. The current position allocation is still stable and has not gone crazy.”

The strategist pointed out that the ECB's decision to keep interest rates unchanged also boosted the European market, while the overall performance of this earnings season exceeded market expectations. According to the data, profits of the European Stoxx 600 Index constituent stocks jumped 19% year-on-year in the second quarter after two years of almost zero growth.

Profit growth boosts European stock markets more than US stocks

In addition to macroeconomic and fundamental benefits, capital game behavior further boosted the European Index's upward trend. Chew stressed that part of the rise in Germany's benchmark DAX index in the current round is bearish squeeze, that is, investors are making up for their previous bearish positions in the stock market.

He said, “Currently, a large number of short positions have gone into loss. If the upward momentum continues, the index is vulnerable to further bearish correction.”

In the context of the turbulent AI market, the European market, which has stable fundamentals and less disruptive themes, has won financial favor. Amelie Derambure, senior multi-asset portfolio manager at Europe's largest asset management company, recently revealed: “We reduced our exposure to the US before the earnings season and moved some of our positions to Europe. We are uneasy about the excessive concentration and weight of the AI topic, and we expect Europe to deliver on its high profit expectations — and it turns out it did.”

Last week, the European Stoxx 600 Index rose 0.7%, and has accumulated a cumulative increase of nearly 5% since the beginning of June. The S&P 500 index remained essentially flat during the same period.