Bonds and ETFs Dominated European Fund Flows in 2025

- The European Central Bank held its key deposit rate at 2.00% through the end of 2025, a factor that influenced the search for yield in bond markets. In Turkey, meanwhile, the central bank pursued an opposite policy, cutting its policy rate multiple times to reach 38% by December 2025 in an effort to combat slowing growth while balancing high inflation. - The significant inflows into European equity ETFs, which reached a record high of €62.3 billion, were partly driven by strong market performance, with the EURO STOXX 50 benchmark gaining 22.1% in 2025. Thematic ETFs focusing on Net Zero 2050, global defense, and artificial intelligence also saw notable inflows. - While European investors showed a defensive stance, the Turkish startup ecosystem saw a sharp 45% year-over-year decline in domestic VC investment, raising a total of $589 million across 306 deals in 2025. However, Turkish diaspora-founded startups bucked this trend, raising $1.1 billion and producing three new unicorns. - In Turkey, Artificial Intelligence startups accounted for the highest number of deals in 2025, with fintech and gaming attracting the largest share of total capital. This aligns with global VC trends, where AI was a dominant investment theme, attracting nearly one-third of all venture funding worldwide. - The push to commercialize university research in Turkey gained momentum through initiatives like the DE-TECH project, which held a competition and Demo Day in Istanbul in December 2025 to connect deep tech academic projects with market opportunities. This addresses a recognized weakness in converting high-quality academic research into fundable ventures. - Macroeconomically, Turkey's disinflation program showed some success in 2025, with year-end inflation falling to around 31-32%, down from 49.4% in September 2024. Despite this, high financing costs for manufacturers and stubbornly high food and rent prices remained significant challenges for the domestic economy. - Globally, venture capital investment in emerging markets presented a mixed picture in the first half of 2025; the Middle East saw funding double year-over-year, while Southeast Asia experienced a sharp decline. This divergence highlights the region-specific dynamics that funds in markets like Turkey must navigate. - A notable trend in European corporate finance was the surge in "reverse Yankee" bonds, where US-based companies issue debt in euros. This issuance reached its highest share of the new euro corporate supply since 2019, indicating a strategic move by US firms to capitalize on lower coupon rates in the European market.