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Welcome to Thoughts on the Market. I'm Andrew Sheets, head of Corporate Credit Research at Morgan Stanley. Today a discussion of merger and acquisition activity or ma. Last year we had a view that this activity would pick up significantly. We think we're seeing that increase now. It has further to go. It's Wednesday, October 29th at 2pm in London. We have been firm believers at Morgan Stanley in a significant multi year uplift in global merger and acquisition activity, or ma. That conviction remains. The incentives for this type of action are strong. In our view, activity still lags what fundamentals would suggest and supportive regulatory shifts are real. M and A has now returned and importantly, we think there's much further to go. Indeed, M and A is very closely linked to corporate confidence and we think investors need to consider the possibility that we'll see an even bigger surge in this confidence or a boom. First, policy uncertainty is declining as US tax legislation is now passed and tariff rates get finalized. It's the relative direction of this uncertainty that we think matters most for corporate confidence. Second, interest rates are declining with the Fed, European Central bank and bank of England all set to cut rates further over the next 12 months. Third, bank capital requirements may decline in the view of Morgan Stanley analyst, which would unlock more lending for these types of transactions. Fourth, and very importantly, the regulatory backdrop is becoming more accommodative in both the US and in Europe. Indeed, we think that companies may think that this is going to be the most permissive regulatory window for transactions that they might get for some time. Fifth, private equity, which is a big driver of M and A activity, is sitting on over $4 trillion of dry powder in our view, at a time when credit markets look very wide open for financing their transactions. And finally, we're seeing a surge in capital expenditure on Morgan Stanley estimates, which we see as a sign of rising corporate confidence and importantly an urgency to act, with corporates far less content to simply sit back and repurchase their stock. All of these favorable conditions together argue for activity to push even higher. We forecast global MA volumes to increase by 32% this year, over an additional 20% next year, and reach $7.8 trillion in volume in 2027. This is a global story with MA rising across regions, especially in Japan. It has cross asset implications with MA already being one of the biggest drivers of bond outperformance within the US high yield market. And this is also a story where we see a lot of value in bringing together macro and micro perspectives. We while we think the top down conditions look favorable for all the reasons I just mentioned, we also see a very encouraging picture bottom up. We polled a large number of Morgan and Stanley sector analyst teams and asked them about M and A conditions in their sector. A large majority of them see more activity. So where could these more specific implications lie? Well, as you heard on yesterday's episode, healthcare and biotech may see an uptick in activity in the U.S. we also think that banking and media stand out in Europe. Business services, metals and mining and telecom seem most ripe for more ma A. Aerospace and defense is an interesting sector that may see more M and A within multiple regions, including the US And Europe, as companies look for scale and with smaller companies trading at a valuation discount to their larger peers across the world, Morgan Stanley analysts generally see the strongest case for activity in larger companies acquiring these smaller ones. Thank you as always for your time. If you find thoughts of the market useful, let us know by leaving a review wherever you listen and also tell a friend or colleague about us today.
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