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Weekly View – M&A Boom

M&A (mergers and acquisitions) activity is on the rise, as companies coming out of the pandemic with strong balance sheets shop for buying opportunities. Last week ACS, a Spanish construction group, approached Italian transport company Atlantia to buy Italy’s largest motorway network. Two big funds are also eyeing Dutch telecommunications company KPN as a potential acquisition target. M&A is one of our 2021 investment themes and we like event-driven hedge funds for this play.

The European covid vaccination effort is picking up speed and at the current rate, the European Commission’s target of a 70% vaccination rate by September is within sight. This improved outlook seems to be shared by markets, as the European 5y5y inflation swap has reached its highest level since December 2018 and European equities have outperformed their US counterparts so far this year. Meanwhile, Italy’s prime minister Mario Draghi announced that his government recently blocked the Chinese takeover of an Italian semiconductor company. This signals that state interventionism is likely to remain as governments move to protect strategic sectors.

Last Monday’s Federal Reserve meeting yielded dovish comments that put the US dollar on pause and stabilised the gold price. We will be watching inflation numbers this week. In US politics, House Speaker Nancy Pelosi is pushing for approval of the proposed infrastructure plan by August, with room for negotiations on the proposed corporate tax hikes at 25% rather than the 28% initially proposed. For the taxation of multinationals, last week the US put forward to the OECD a global minimum tax proposal based on location of sales. This would bring stabilisation to the international tax system as it attempts to halt the rise of digital taxation and tax avoidance practices. This week kicks off the Q1 earnings season with markets expecting solid earnings growth. We will need a healthy beat and improved outlook to maintain the current momentum, given that markets have already done quite well. Volatility is now back to pre-covid levels. Portfolio protection has become cheap again.

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Cesar Perez Ruiz
Cesar has more than 25 years’ experience running investment strategies in both wealth and asset management, with a strong bottom-up equity portfolio management track record and substantial multi-asset class investment strategy expertise.
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