Global Liquidity Spurs Asset Prices, Kick-Starts Deal Making

• 2 min read

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Fiscal stimulus programs have flooded the world with cash, leading to eye-popping spikes in many asset prices and fueling a jump in corporate mergers and acquisitions that will probably accelerate in coming months.

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For more than a decade, the world has been awash with cash thanks to accommodating monetary policies and generous government programs aimed at bolstering economies ravaged first by a financial crisis and then a pandemic. This massive liquidity has also led to significant asset price increases.

Some of the numbers are eye-popping:

  • Residential real estate, where homebuyers find often unbearably competitive markets, has seen significant price appreciation. The Case-Shiller 20-City Composite Home Price Index has risen by over 13% in the past year alone.
  • Equity markets have reached expensive levels with traditional value metrics, such as price to earnings (P/E) and price to sales (P/S), reaching historically high levels.
  • Crypto currencies have captured the public’s attention. Bitcoin pricing approached $65,000 in mid-April, a seven-fold increase from the price at the middle of 2020 (prices have corrected significantly in recent weeks). The exuberance across markets can be daunting.
  • Oil prices have rebounded from about $35 a barrel at this time last year, closing above $70 on June 11.

Liquidity is also driving activity in the corporate sector where mergers and acquisitions (M&A) are accelerating. Companies are doing deals at a rapid clip so far in 2021, and deal counts have recovered from a low in the second quarter of 2020. Total transaction value in 2021 reached $2.4 trillion by June, with monthly transactions worth more than $500 billion occurring in March, April and May.

Corporations clearly believe these investments will help sustain and extend their growth. For private-equity and venture-capital investors, M&A activity provides welcomed exits for past investments, allowing for liquidity within portfolios. AMG expects increased M&A activity to continue the rest of year.

This information is for general information use only. It is not tailored to any specific situation, is not intended to be investment, tax, financial, legal, or other advice and should not be relied on as such. AMG’s opinions are subject to change without notice, and this report may not be updated to reflect changes in opinion. Forecasts, estimates, and certain other information contained herein are based on proprietary research and should not be considered investment advice or a recommendation to buy, sell or hold any particular security, strategy, or investment product.

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