Fitch survey reports improved investor sentiment

After two years of turmoil, the credit markets are showing signs of recovery, according to respondents to Fitch Ratings' latest quarterly European senior credit investor survey.

Of the 62 institutions that responded in June, 72% believe the credit market is past the worst point of the recent disruption, in contrast to 29% when the same question was asked at the end of the first quarter.

With many assets still pricing below their true economic value, 85% of the polled investors said they are buying to take advantage of the situation, a 14% increase over the first quarter.

But respondents are still cautious about the issues of loss-taking and the length of the economic recession. Almost half of those surveyed said credit losses have yet to peak, compared with 68% in the Q1 report. Meanwhile, the majority of respondents believe the current recessionary conditions will continue for at least another 12 months in the UK (83%), the eurozone (86%) and emerging European markets (83%). That response is in contrast to their US counterparts, 23% of whom asserted the recession had reached its trough in the second quarter, and 44% of whom believed the recessionary conditions would not last beyond June 2010.

In terms of individual risks that could have a destabilising effect on the credit markets - including liquidity issues, a major bank collapse and housing market disruptions - the survey showed investors are now less fearful than they were at the end of March. Nevertheless, 27% still believe liquidity risk remains high, while 20% consider geopolitical risk a serious concern, compared with just 10% in the first quarter.

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