Macquarie Capital
6 December 2024
The stabilising global economy and some easing of key challenges that defined recent years are creating a more constructive outlook for businesses to pursue strategic investments and access capital.
Global equity markets strengthened through 2024 as investors positioned their portfolios towards growth. In Australia, equity issuance increased rapidly in the second half and, after a long drought, initial public offerings strengthened in the final quarter.
Source: Dealogic1
Borrowers globally are benefiting from an abundance of liquidity with credit spreads approaching three-year lows. Combined with record levels of private capital waiting for deployment, conditions are set for a pivotal year in markets.
Behind it all, the major movements of decarbonisation and digitisation are propelling profound structural change and will continue to drive capital deployment and transaction activity for businesses with leaders ready to act decisively and seize the opportunities ahead.
It is always better to focus on the structural rather than the cyclical. In five years’ time, the winners will be those who recognised and acted on these structural opportunities to pursue their strategic agendas, while also managing their important social licence responsibilities."
Tim Joyce
Head of Macquarie Capital, Asia-Pacific
The past year has witnessed the digital revolution gather pace, driving surging demand for processing power as businesses accelerate cloud migration, harness AI’s transformative potential, and develop AI-driven strategies to reshape operations and unlock efficiencies.
By contrast, the energy transition has faced challenges amid uncertainty about the global decarbonisation path, the achievability of targets, and the pace of transmission infrastructure development.
“Two big global thematics – one is burgeoning while the other is a more complex equation, but both are certainties and inextricably linked,” says Joyce.
“AI feels like a one-way bet. Most large-scale businesses are developing AI business cases and computing activity is rapidly moving to the cloud. There is a very clear pathway there.
“The energy transition is more complicated, but the level of systemic infrastructure required to support the transition is immense.”
Still, short-term complexity does not change long-term outcomes.
“Timeframes might shift – and it will inevitably take longer than some of the targets that have been set – but the energy transition is happening. It is not a question of if, but when.”
As AI reshapes industries and the energy transition evolves, one thing is clear: the world is facing an inexorable rise in demand for power.
Michael Milne, Macquarie Capital’s Head of Technology, Media, Entertainment, and Telecommunications in Australia and New Zealand, says the accelerating cloud and AI transition is driving global demand for data centres and the energy infrastructure that powers them.
“The fundamental message is that processing demand has strong structural tailwinds. The common thread is clear: AI, cloud computing, and emerging technologies like quantum all need processing, and processing is about power.”
In fact, energy is fast becoming the single most constraining factor in the digital transition.
“The efficiency of computing is rising exponentially, but the gains are not enough to offset the growth in demand for power at this stage.”
Source: Mordor Intelligence2
Meeting the twin challenges of surging energy demand and decarbonising the global economy depends on securing the critical minerals that underpin industrial growth and electrification.
The resources sector is entering 2025 in a strong position, with robust fundamentals now being seen across most commodities, says Macquarie Capital’s Global Head of Critical Minerals and Energy, Russell Keating.
Continuing urbanisation and industrialisation, particularly in Asia, is driving sustained demand for raw materials and energy, while the energy transition is continuing to create significant demand for copper in particular, which plays a critical role in electrification and batteries.
As a result of limited supply, growing demand, buoyant commodity prices, and an increasingly scarce set of investment options, opportunities are emerging for companies willing to take decisive long-term positions.
“It's a unique inflection point for opportunities in key minerals. We expect commodity prices to support activity, and the brave will be rewarded if they're prepared to act and invest on a long-term basis,” says Keating.
Commodities are only part of the story. Tom Butcher, Macquarie Capital’s Head of Infrastructure, Asia-Pacific, says building the infrastructure required to support electrification demands unprecedented levels of capital investment.
This investment spans a vast array of critical projects including expanding and upgrading electricity grids, adding renewable generation capacity, electrifying heavy industry and mining operations, modernising electricity meters, and deploying battery storage across homes and businesses.
Compounding the challenge is a backlog of essential projects created by several years of underinvestment. Post-pandemic, as interest rates rose, many asset owners delayed investment plans, straining infrastructure networks. This backlog began to clear in 2024, setting the stage for accelerated activity in 2025 as more projects move forward.
Butcher says debt markets are among the most supportive they have been in years, creating a favourable environment for financing these kinds of large-scale projects. Both public and private equity investors have remained active, but they are seeing increased allocations to the sector as activity continues to rise.
“The scale of the opportunity is enormous,” says Butcher. “And it is going to go on for decades to come, with significant opportunities across all key infrastructure sectors.”
Macquarie Capital’s Co-Head of Equity Capital Markets, Asia-Pacific, Georgina Johnson, says 2025 is shaping to be the most favourable environment for business since the pandemic.
“We came out of COVID with ASX corporates very well capitalised, but quickly moved into an inflationary environment where businesses primarily focused on optimising core operations,” says Johnson.
These conditions left many companies unable to pursue expansion or acquisitions until they could fully assess and adapt to cost inflation and the impact of higher interest rates.
Now, with cost inflation stabilising and RBA cuts expected in the first half of the year3, boards and management teams are refocusing on growth.
“Recent transactions pursuing growth initiatives have seen strong support from investors, with the market willing to pay attractive multiples for high-quality sustainable earnings growth.
“The average price-to-earnings multiple for the ASX 200 is around two and a half times higher than the long-term average4 – providing issuers with an attractive cost of capital to fund growth,” says Johnson.
Amid growing confidence that momentum and growth are being rewarded, businesses are also increasingly focusing on balancing the needs of shareholders, stakeholders, and the wider community.
Macquarie Capital’s Head of Financial Institutions Group in Australia and New Zealand, Laura Golis, says she sees business ready to move forward with confidence after a period of post-COVID adjustment and reflection.
Golis describes this shift as an “alchemy” of factors coming together - the easing of 2024’s political uncertainty, a new sense of economic stability, and the return to more sustainable interest rate levels.
This renewed purpose is matched by a growing sophistication in stakeholder management as businesses increasingly focus on long-term community needs and seek to address real challenges.
“Leaders have to make decisions - not making a decision is as risky as making one,” says Golis.
“The microscope on business is much stronger, but people are increasingly factoring that into decision making.”
Risks lie ahead, however, especially as markets prepare for the arrival of the incoming new administration in the US.
While a sense of market optimism prevails, questions linger about the pace and scale of US tax cuts and their impact on consumer spending and inflation. President-elect Trump’s tariff plans also present uncertainty for Australian businesses, with some likely to benefit and others face challenges.
| President Biden | President Trump | |
|---|---|---|
| Tariffs on China | ~20 per cent | 50-60 per cent |
| Tariffs on rest of world |
Very limited | 10 per cent |
| Immigration | Significant inflows | “Largest deportation operation in American history”6 |
| Fiscal policy | Expansionary | Expansionary, but needs Congressional support |
| Federal Reserve | Respectful of independence | Potential ‘friendly’ Fed Chair in mid 2026 |
| Deregulation | - | Aggressive |
| Energy | Encourage renewable development (IRA) | More oil and gas dril |
| Government spending | - | Elon Musk appointed to co-lead new Department of Government Efficiency |
Sources: Macquarie Macro Strategy, Peterson Institute, Press Releases5
Sources: FactSet, Reuters, and Yahoo Finance.7
“There will continue to be volatility – but overall, it will be a positive environment,” says Johnson.
“Even given the sporadic activity over the course of the past year, when ASX corporates have come to the market to fund growth, debt and equity investors have been very supportive.”
Driving that support is a supply-demand imbalance as fund inflows continue for listed equities but issuance remains lower than in previous periods. This imbalance is creating a favourable environment for companies coming to market.
“Listed investors have dry powder – equity markets continue to perform well with funds continuing to be allocated to the asset class that they need to put to work.”
Adding to the attractiveness of the backdrop is a notable increase in activity from private capital investors and high-net-worth individuals, particularly in AI-related ventures and disruptive technology businesses.
Dragi Ristevski, Macquarie Capital’s Head of Private Equity, Asia-Pacific, says private capital is poised to play an increasingly important role in 2025 as the confluence of stabilising macroeconomic conditions, record levels of dry powder, and a growing pipeline of exits combine to drive renewed activity.
“Private capital players need two sources of capital for deal-making – equity and debt,” says Ristevski.
“They continue to have near-record dry powder in equity, and debt is now increasingly available on attractive terms. This combination should lead to a more constructive context for deal activity.”
While inflation and higher interest rates have hampered consumer activity over the past year, stabilising economic conditions are helping buoy confidence.
“Private equity firms and private capital firms are ready to deploy. At the same time, businesses that need exits have been waiting for stronger conditions to get those transactions done.
“The capital waiting to be deployed needs to find its way to the assets that need to exit. As we enter the year with more positive sentiment and confidence, there should be a better setting for transactions.”
Macquarie Capital’s Vantage provides an overview of what’s driving M&A and capital markets activity across Asia-Pacific and the outlook on what is expected to shape market activity in 2025.
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