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M&A(benomics)

Global equities were buoyant to start the new week as deal activity, a smooth leadership transition in Japan, and vaccine progress served to inspire confidence amid a minefield of event risk.

As expected, Yoshihide Suga prevailed in the Liberal Democratic Party’s leadership contest. He’ll become Japan’s first new prime minister in eight years, replacing Shinzo Abe, who resigned last month amid health concerns tied to a long-running struggle with ulcerative colitis. Suga pledged continuity in the most explicit terms imaginable. “To make sure everyone in the country can feel reassured and live a stable life, we need to continue with Prime Minister Abe’s efforts”, he said.

Suga won nearly 71% in the LDP vote. As for the prospects of an early election, Suga said he’d ask health experts, but added the obvious: It will be difficult to pull off an election while the coronavirus is still loose. He’ll continue Abenomics and champion Japan’s alliance with the US, one of the few international partnerships that remains as strong (if not stronger) under the Trump administration. He’ll inherit an economy mired in recession, and has pledged to safeguard jobs and the corporate sector, even if that means taking on mountains of additional debt.

This is unlikely to alter the course of the yen, Goldman says. “Our economists expect few major changes in policy direction over the near term, and BoJ Governor Kuroda will remain in place”, the bank added. “As a result, cross-border portfolio flows should continue to be the main driver of the yen”.

Although a smooth transition was widely expected, in the sessions around Abe’s resignation, there were fleeting concerns around the possibility of yen strength and equity weakness tied to policy changes. No such changes are forthcoming — or at least none that market participants need fret over. Notably, this could add to the good vibes around Japanese shares engendered by Warren Buffett’s recent foray into the country’s trading houses.

Meanwhile, SoftBank remains a fixture in the news cycle. The shares surged the most in six months after the conglomerate agreed to offload Arm to Nvidia for a cash and stock deal worth $40 billion.

The shares have now erased losses tied to Masayoshi Son’s controversial options trades in US tech. The deal for Arm faces myriad regulatory hurdles, and will need approval from the UK, the US, the EU, and, most daunting, China.

The process could take a year and a half. It would be the biggest deal in the history of the semi industry, which is a focal point of Sino-US tensions. Nvidia CEO, Jensen Huang, said he “fully expect[s] to spend time with the regulatory bodies in China”, but expressed confidence in his ability to obtain the requisite approvals.

KeyBanc warned of “significant risk around deal approval in this tense trade-war environment”, while Susquehanna cautioned on “an intense regulatory review process”. Evercore echoed those sentiments, saying the tie-up will be “challenging” from a regulatory perspective. RBC called deal approval “the biggest hurdle”.

SoftBank was boosted further by fresh rumors that the company could be taken private. Cue the “funding secured” jokes.

It’s hardly surprising that privatization speculation — a mainstay in the rumor mill — is grabbing headlines again amid asset sales, buybacks, high profile flameouts, and media scrutiny around Son’s trades in options on US tech companies.

Read more:

Oh, Whale: Misguided Media Frenzy Around Tech Trades Prompts Rethink At SoftBank

We’re All SoftBank. We’re All Masayoshi Son. We’re All Robinhood.

Whale Tales And Riverboat Gamblers: The Story Of 2020’s Summer Tech Bonanza

The conglomerate is also poised to get more than $10 billion from the sale of a stake in its domestic wireless unit.

The proposed Nvidia deal for Arm will be front and center in the tech space Monday (and for a long time thereafter). Nvidia was higher in the pre-market.

Oracle looks set to rise as well, after winning the bidding war for TikTok. That too will provide more than enough story fodder to carry tech reporters through the week.

On the vaccine front, Pfizer sees a shot widely available in the US by the end of the year, and emphasized that the company is ramping up manufacturing to ensure it will be ready once regulatory approval comes down. AstraZeneca and Oxford have, of course, resumed their trial after a brief halt for an unexplained illness.

All of this adds up to a risk-on tone for markets as the new week dawns in the US. M&A, immunization, and political continuity in the world’s third largest economy, are a solid bull base on which to build. But, as ever, plenty could go wrong.


 

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