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Societe Generale’s asset allocation team reckons cash-rich corporates are going to start ploughing money into deals as the economy recovers, and that spells a brighter future for stocks than bonds. The graph above is lifted from a note published earlier this week, in which the French bank shows how equities tend to outperform bonds as M&A becomes proportionally more important (they measure it as a percentage of GDP).

The Paris- and London-based team adds:

“Beyond share buybacks, we believe three main factors will trigger a strong M&A cycle: equities are still cheap versus bonds, productivity gains should continue to be a priority for corporates and the primary credit market has reopened, with access to cheap financing. Furthermore, higher industrial concentration leads to stronger pricing power.”

“M&A is currently a massive source of alpha for stock pickers as control premiums are above 40% in the U.S. and above 25% in Europe.”