European assets are attracting stronger inflows as investors shift part of their allocations away from the U.S., lifting stocks, government bonds and the euro. The Stoxx 600 has climbed 12% this year, benchmark bonds in Germany, Italy and France have surged to record highs, and the euro is trading above $1.15 after reaching a seven-week high on Aug. 7. The move has been supported by Europe’s strongest earnings season and economic recovery in four years, alongside inflation that investors view as contained enough to keep the European Central Bank on a more predictable path than the Federal Reserve. Bloomberg data showed second-quarter net income for companies in the MSCI Europe index jumped 17%, the biggest increase since the end of 2022, with mining and industrial companies making the largest contribution. Investors are also broadening their artificial intelligence exposure beyond the biggest U.S. infrastructure spenders. A Bank of America basket of European AI adopters has risen 14% this year, outperforming a 4% gain for U.S. hyperscale technology companies, while some fund managers argue Europe offers less concentration risk than the U.S. or Asia. Bond investors have also rotated into euro-area sovereign debt as fiscal and policy risks in the U.S. and Japan become harder to price. German bunds have outperformed U.S. Treasuries, and the spread between 30-year U.S. and German yields has widened to the most in a year. Japanese balance-of-payments data showed investors bought French government bonds last month while selling U.S. and Australian sovereign debt. Some investors remain skeptical that the rally can last. Higher oil prices, lower European liquefied natural gas inventories, rising global food prices, worsening fiscal conditions and political uncertainty could revive inflation pressure and challenge the region’s recent outperformance, especially if money flows back into AI-linked trades.