European investors are increasingly optimistic about the outcome of the eurozone sovereign crisis, according to Fitch Ratings’ quarterly investor survey.
The credit ratings agency (CRA) said that the proportion of survey 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.
When asked about the end-game for the eurozone, just over half (51%) said they expect it to muddle through. 28% anticipate fiscal union.
The responses signal more confidence than in the July 2012 survey. Although 11% still think the end-game will involve Greece and perhaps one or two other peripheral countries leaving the eurozone, this is down sharply from the 21% who predicted this outcome just six months ago.
Fifty-three per cent think that eurozone sovereign funding conditions in 2013 will be better than H212. 39% expect conditions to be about the same and only 8% expect deterioration.
The responses tally with Fitch’s view that the announcement of the European Central Bank’s (ECB) outright monetary transactions (OMT) programme in September marked a major turning point by significantly reducing the tail risk of a self-fulfilling liquidity crisis for a eurozone sovereign. Policy makers appear determined to keep the periphery countries in the eurozone, for example by continuing to provide official support to Greece.
However, Fitch again stresses 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.
The Q113 survey was conducted between 4 and 31 January and represents the views of managers of an estimated US$7.6 trillion of fixed-income assets.
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