BlackRock's optimism toward the European stock market is waning.
The world's largest asset management firm recently issued a warning to the market: surging energy prices are eroding European corporate profits and consumer purchasing power. Combined with the fading valuation advantage, European stocks are no longer the attractive investment target they were a few months ago.
Helen Jewell, Chief International Investment Officer at BlackRock's Fundamental Stock International division, stated, &#34;It is difficult for us to remain as optimistic about Europe as we were before.&#34; She pointed out that the impact of global energy price shocks on European consumption expenditure and the narrowing valuation gap between US and European stock markets are the two core reasons for her downgrade of European stocks.
<h2>Valuation Advantage Has Disappeared</h2>
At the beginning of this year, European stocks briefly became a hot spot for global capital. At that time, valuations of US tech stocks were sky-high, prompting investors to seek alternatives. European stock funds recorded record-breaking capital inflows.
However, with the outbreak of the Middle East conflict, the trend reversed sharply. The EURO STOXX 600 Index fell nearly 12% cumulatively from its pre-conflict high to its low in March, while the US S&amp;P 500 Index saw a maximum decline of only about 8% and has since rebounded to an all-time high.
Helen Jewell bluntly stated, &#34;A year ago, there was a very attractive valuation gap between the US and Europe. Now, that gap has narrowed.&#34; &#34;You can no longer loudly claim that Europe looks cheap now.&#34;
<h2>Energy Shock Is the Core Variable</h2>
Europe's weak point lies in energy. Unlike the US, Europe is a typical &#34;price taker&#34; in the face of global energy supply shocks—unable to set prices independently and forced to passively bear the consequences.
Emmanuel Cau, Head of European Equity Strategy at Barclays, commented on this: &#34;This war simply reminds the market once again that Europe is fragile and is a price taker across all commodities.&#34; This week, Barclays advised clients to position themselves in US stocks to outperform European stocks.
The transmission chain of high oil prices is clear: rising energy costs → pressure on corporate profits → shrinking disposable income for consumers → declining consumer spending. Helen Jewell expressed concern over this: &#34;We are very cautious about overall consumers. They are being squeezed by both interest rates and inflation, and will start seriously considering where to spend their money.&#34;
She had previously pinned hopes on a &#34;broadening rally&#34; in the European market—that is, the momentum in strong sectors such as banking and defense spreading to sectors like healthcare, luxury goods, and industry. However, this logic has now &#34;contracted.&#34; These sectors were dragged down last year by Trump's tariff shocks and the appreciation of the euro. Although they were expected to rebound this year, they have once again come under pressure due to high oil prices, rising borrowing costs, and weak consumption.
<h2>Capital Accelerates Flow to the US</h2>
This week, BlackRock Investment Institute adjusted its US stock positions to above benchmark overweight levels. Helen Jewell explained, &#34;Global funds currently see more interesting opportunities in the US,&#34; partly because the US has less exposure to global energy supply shocks.
Capital flow data confirms this trend. According to EPFR data, capital inflows into European stock funds have plummeted since the outbreak of the conflict; meanwhile, net inflows into US stocks in April exceeded those of any month prior in 2024.
<h2>Structural Vulnerability: A Few Sectors Support the Entire Market</h2>
BlackRock is not broadly bearish on Europe. Helen Jewell stated that she remains positive on sectors such as military defense, banking, and semiconductors.
However, she simultaneously raised a warning risk: investor positions are becoming highly concentrated in just a few sectors. If one or two of these sectors encounter negative news, it could trigger severe selling across the entire market.
&#34;The market structure is fragile,&#34; she said. &#34;If something goes wrong with one of these sectors, the entire market will suffer a significant shock.&#34;
Nevertheless, Emmanuel Cau also pointed out a potential long-term positive scenario: if this crisis ultimately pushes European governments to increase investment spending, the situation could turn around. &#34;If you want to remain optimistic, perhaps in the long run, this will force Europe to increase investment and strengthen strategic autonomy.&#34;
Risk Warning and Disclaimer
Investing involves risks; caution is required. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial status, or needs of individual users. Users should consider whether any opinions, views, or conclusions presented herein align with their specific circumstances. Investments made based on this content are at the user's own risk.

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BlackRock warned that surging energy prices are eroding European corporate profits and consumer purchasing power, dampening its optimism for European equities. Helen Jewell, Chief International Investment Officer at Fundamental Stock International, cited global energy price shocks and the narrowing valuation gap between US and European stock markets as the core reasons for downgrading European stocks. She noted that Europe is a price taker in the face of energy supply shocks and faces significant vulnerability. Barclays has advised clients to position themselves in US stocks to outperform European stocks

- BlackRock has warned that optimism for European stocks is waning due to surging energy prices impacting corporate profits and consumer purchasing power.  
- Helen Jewell highlights the narrowing valuation gap between European and U.S. markets as a core reason for her downgraded outlook, noting the vulnerability of Europe as a price taker in global energy supply shocks.  
- Despite still favoring sectors like defense and banking, risks persist as investor positions concentrate in a few segments, potentially leading to significant market volatility if negative news arises.

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World's Largest Asset Manager Warns: High Energy Prices Will Cripple European Stocks