AI's primary impact on M&A isn't the direct acquisition of technology. Instead, the AI revolution reinforces the strategic belief that massive corporate scale is essential for future competitiveness. This belief fuels the appetite for large, strategic M&A to consolidate and grow.
Beyond the typical 'flight to safety' in the US dollar during a crisis, a more nuanced currency play exists. Currencies of commodity-exporting countries, such as the Brazilian Real and Australian Dollar, are positioned to benefit from the positive terms-of-trade impact of higher energy prices.
After facing COVID, the Ukraine war, and trade tensions, business leaders are more accustomed to instability. They are learning to maintain a long-term strategic focus and deploy capital despite short-term shocks, demonstrating a higher tolerance for risk than in previous eras.
Despite its challenges, Europe’s potential is immense, with 450 million people and 15% of global GDP. The key to unlocking this is for the continent to operate as a unified economic bloc, creating an 'investment and savings union,' rather than 27 individual states, to compete with the U.S. and Asia.
Recent pressure on UK interest rates, suggesting fewer central bank cuts, may be an overreaction driven by client deleveraging rather than fundamentals. This creates a contrarian opportunity, with the view that the UK will ultimately cut rates more than currently priced, leading to UK fixed income outperformance.
While public software stocks have dropped 20-30% on fears of AI disruption, credit markets, particularly private credit, remain confident. Lenders are protected by low leverage multiples (1-6x EBITDA) and a substantial equity cushion, making them less sensitive to equity valuation shifts.