The majority of European investors believe buoyant financial markets do not reflect underlying weaknesses in the eurozone, according to Fitch Ratings’ quarterly investor survey.
The credit ratings agency (CRA) reports that doubters are in two camps: 29% who feel that this is a short-lived period of market calm; and 30% who said markets are irrationally exuberant, ignoring the weak economic outlook for Europe. The remaining 41% of survey respondents think the worst of the crisis is over due to strong support from the European Central Bank (ECB) and policy makers.
There is a stark dichotomy between the continuing recession with rising unemployment across Europe and the rally in financial markets, in Fitch’s view. If the latter is not validated by economic stabilisation and progress towards banking union, the danger is that market volatility will return with a vengeance over the summer, as it did in 2012 and 2011.
In the survey, concern for the economy was also evident in investors’ views on recession and inflation risk. Eighty-six per cent said a prolonged recession poses a high risk to the European credit markets, up from 69% in the last survey and an all-time high. In a further indication of the low confidence in economic recovery, the survey respondents regarded inflation as unlikely, with only 9% of respondents ranking it as a high risk while more than three times as many (29%) regard deflation as a high risk.
Fitch conducted the Q213 survey between 3 April and 7 May. It represents the views of managers of an estimated €8.6 trillion of fixed-income assets.
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