Investors start to regain faith in the Eurozone

 
Tim Wallace
Follow Tim
INVESTORS at last believe the European economy is on the right track, with investment beginning to flow back into the stricken continent, surveys and data showed yesterday.

For the first time since 2010, a Fitch survey showed more investors are optimistic than pessimistic, as respondents “were swept up on a wave of new year enthusiasm.”

Market sentiment had been weak over the past years with the sovereign debt crisis raising fears that countries like Greece and Spain could leave the single currency, as well as uncertainty over governments’ bailouts.

But markets appear to have calmed down, particularly in light of European Central Bank (ECB) promises to buy bonds of bailed out nations.

A total of 51 per cent told Fitch they now expect the Eurozone to muddle through rather than break up, a sharp improvement on the 31 per cent in the July 2012 survey.

And ECB data showed an improvement in investment flows into the currency area.

Net portfolio investment inflows came in strong in the year to December, with a net €82.4bn (£71.1bn) in equity investments and €28bn in bonds and notes.

Those inflows more than outweigh the net outflows of from money market instruments and direct investment, leaving net investment flows at €13bn for the 12-month period.

But Fitch warned the growing signs of recovery do not mean the crisis is entirely behind the Eurozone.

“Volatility will stay high, and investor confidence will not be fully restored until a tangible economic recovery is underway,” it noted.

“Policy momentum towards a deep- er 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.”