EUROPE - Most senior credit investors in Europe now believe the markets are past the worst of their disruption, according to Fitch Ratings.

The company's European Senior Credit Investor Survey, June 2009, found that 72% of credit investors believed the worst was over, compared with just 29% in the first quarter of the year.

The quarterly survey featured 62 responses from 100 of the top investing institutions in Europe, most of whom have over $100bn (€70bn) of fixed income investments under management.

While 54% of European credit investors consider that banks have not been subjected to sufficient regulatory stress testing, the fear of a major bank collapse has subsided dramatically, with 57% now rating this as a low probability, compared with 29% three months ago.

The upsurge in optimism is reflected in views of how long the recession is likely to last, in particular for emerging Europe. A majority - 55% - of investors in the first quarter survey reckoned the recession would last for over 24 months, but just 18% believe that now. Meanwhile 65% think the recession will last a further 12 to 24 months, as against 39% in the first quarter.

Views have similarly eased in relation to the developed economies. The proportion who consider the US recession will last another 12 to 24 months has remained stable at around 45%, but the percentage saying it will last less than 12 months has jumped to 44% from 32%.

However, there are still grounds for uncertainty. "The availability of global liquidity remains the primary area of investor concern, although less convincingly so than in the previous quarter," says Trevor Pitman, regional credit officer, EMEA and Asia-Pacific, Fitch Ratings.

The survey found 27% of credit investors scoring the risk of liquidity shortages as high, although this represented a drop from 40% of investors at the end of the first quarter. There was also a sizeable percentage - 23% -- who saw the risk of housing market disruption as high, a slight fall over the 29% who were similarly concerned three months ago.

Of the other risks which Fitch asked investors about, over half of respondents regarded the risk of hedge fund collapse, geopolitical events, housing market disruption and global liquidity disruptions as having moderate probability.

Fitch says that overall, European investor sentiment is consistent with the sentiment of US investors expressed in a recent survey, which it conducted in conjunction with the Fixed Income Forum.