Why Merger Arbitrage Should Continue To Do Well

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The Weekly Brief

The market rebound since end of December is in stark contrast with the adverse conditions that prevailed in December for risk assets. In our view, the main reasons behind the turnaround are related to: i) a softer monetary policy stance from the Fed, which is likely to be confirmed at the January 29-30th FOMC meeting, ii) easing trade tensions between the U.S. and China, and iii) the announcement of economic stimulus measures in the latter. This suggests that the market recovery can continue in the short term. However, in our view, caution prevails in the medium-term, as recession risks in the U.S. and Europe have risen and Brexit uncertainty remains high.