A new survey of European institutional investors finds that they are increasingly optimistic about the eurozone sovereign crisis.
Fitch Ratings reports that, in its latest survey of European investors, the proportion of respondents who expect fundamental credit conditions for European developed market sovereigns to improve rose sharply to 51%, up from 29% in the October survey. This is the first time in three years that optimists have outnumbered pessimists, it notes.
When asked about the end-game for the eurozone, just over half of investors said they expect it to muddle through, Fitch says; while 28% anticipate fiscal union. “The responses signal more confidence than in the July 2012 survey,” it says. And, while 11% still think Greece, and perhaps one or two other peripheral countries, will end up leaving the eurozone, this is down notably from the 21% who predicted this outcome just six months ago, it adds.
Also, over half of the respondents think that eurozone sovereign funding conditions will be better in 2013 than they were in the second half of 2012, 39% expect conditions to be about the same, and only 8% expect deterioration, Fitch reports.
The rating agency says that these responses fit with its view that European Central Bank actions in September “marked a major turning point by significantly reducing the tail risk of a self-fulfilling liquidity crisis for a eurozone sovereign.”
Nevertheless, Fitch also cautions that the crisis is far from over, and significant risks remain. “Policy momentum towards a deeper economic and monetary union needed to secure the eurozone’s long-term viability will probably slow in 2013. This is in part because market pressures have receded, but also due to other factors such as the approach of German elections. Volatility will stay high, and investor confidence will not be fully restored until a tangible economic recovery is underway,” it says.
The survey was conducted between January 4 and 31, and represents the views of managers of an estimated US$7.6 trillion of fixed-income assets.