By Jeremy Gaunt, European Investment Correspondent
LONDON, May 12 (Reuters) - If it has done one thing the giant debt rescue plan promulgated by the European Union and International Monetary Fund has allowed European investors to start looking at fundamentals again.
As a result, the future direction of euro-denominated assets may again be dictated by investor views on economic growth and corporate profits health rather than by fear of a spiralling debt disaster. Strategists from leading European fund firms have already begun adjusting some allocations to euro-denominated assets upwards in light of the 750 billion euro plan to halt the spread of Greece's sovereign debt crisis.
France's AXA Investment Managers decided on Tuesday to increase its exposure to euro zone stocks following last weekend's EU/IMF agreement.
"We have put some money back to work," said Franz Wenzel, a startegist at the firm in Paris.
He said AXA IM was now neutral on euro zone equities having gone undwerweight in April as the Greece crisis gathered steam.
In a similar vein, one of Generali Investments' chief allocators said it was time to gently re-embrace euro zone equities.
"We have been fairly cautious, quite franky, and we took out exposure," the Italian firm's head of research, Klaus Wiener, told Reuters from is office in Cologne.
"I would be willing to increase again as a result of the rescue package."
Such moves may not reverse the flight from the euro zone seen in the past few months.
Funds tracker EPFR Global, for example, reports that European equity funds had more than $2 billion in net outflows in the week to May 5, the most in a year.
But recovering confidence could put a floor under such losses, at least as far as the debt crisis is concerned.
PILE DRIVER
The issue for investors is not that the rescue package solves Europe's debt problems. On the contrary, they are more keen than ever to see action being taken, as epitomised by Wednesday's positive market reaction to Spain's austerity plan.
Rather, the rescue plan is seen as authorities having taken a huge mallet to a loose peg that was threatening to bring down the tent.
Add to that an agreement among central banks to help out and the actual purchase of euro zone bonds by Europe's central banks and the mallet turned into a pile driver.
"The risk factor for the forseeable future has shrunk very, very, very signifantly," said William De Vijlder, chief investment officer of BNP Paribas Investment Partners.
But that does not mean that investors are likely to dive into euro zone assets willy-nilly.
De Vijlder, for example, says that while demand for euro zone bonds and stocks should normalise now that the abnormal threat has been contained, the future is not necessarily rosey.
His firm is expecting growth to slow in the second half.
"The theme that will dominate for the second half of this year is that, one, there is declining momentum in terms of leading indicators," he said.
"The second element is that investors will increasingly factor in ... the prospect of pretty significant belt-tightening across the globe. This will fuel some worries on growth in 2011."
On top of that, the underlying structural problems facing the euro zone when it comes to debt remain.
But the Greek crisis and the fear that it would spread did mask some relatively bullish news for investors.
There are signs of improving growth in the U.S. economy -- including now in jobs creation -- and the latest corporate earnings season has been robust.
The euro zone's economy itself is also growing, albeit tentatively.
So how investors play things from here should depend on how they view the unfolding economic climate. Assuming, of course, that the newly secured tent peg remains that way.