Cross-border M&A, geopolitical competition in life sciences, new European Parliament and the Mexican election

New European Parliament likely to increase strategic investment and regulatory uncertainty

On June 6-9, EU citizens will elect a new European Parliament. Populist right-wing parties are expected to gain ground over center-left and green parties, capitalizing on a growing populist trend which could also translate into higher-than-usual voter turnout. The center-right European People’s Party (EPP) – expected to remain the biggest party in the parliament – is expected to continue working with center-left (S&D) and liberal (Renew) parties to advocate for more investment in domestic defense and clean technology production but could occasionally side with the populist right to push back on unpopular legislation, such as around new environmental rules.

EU-based companies should expect continued support for investment in strategic sectors including clean technologies (e.g., electric vehicles, renewables), advanced technologies and defense through both EU-wide and national-level funding and regulatory incentives. In parallel, the EU will likely continue to defend domestic strategic industries from certain foreign competitors and restrict foreign investment in critical products. Moreover, delays to some environmental legislation (e.g., ESG reporting) could provide some companies with more time to adjust their business to the new rules but would also increase uncertainty for financial projections and long-term investment strategies.

For more information, contact Famke Krumbmüller

Mexican election may affect nearshoring trend

The Mexican elections on 2 June were the country’s largest ever, with more than 20,000 federal and local seats up for grabs and all 32 states holding concurrent elections. In the presidential race, Claudia Sheinbaum of the ruling Morena party won against her main rival, Senator Xóchitl Gálvez of the Broad Front for Mexico coalition.¹⁰ Morena and its coalition parties also won a majority in both houses of Congress – although it is not yet clear if Morena and its allies secured a two-thirds “supermajority” of seats in both houses. A supermajority in Congress would allow Morena to amend the constitution, which would be necessary to enact some of the reforms on its agenda.

Sheinbaum is expected to continue many of the policies of current Mexican president Andrés Manuel López Obrador (also known by his initials, AMLO), including an emphasis on public security, infrastructure development and expansion of executive power.  Sheinbaum has also discussed the importance of promoting the transition to renewable energy – in part as a way to continue to attract foreign investment and maintain the momentum of the nearshoring trend. Investment opportunities associated with the nearshoring agenda are therefore likely to persist in the manufacturing and technology sectors. However, the market’s initial reaction to Morena’s victory suggested there may be hesitancy among investors due to the party’s potential to pass significant reforms.

South China Sea tensions heighten potential shipping risks

Accelerating geostrategic competition over access to key maritime terrain and natural resources is heightening tensions in the South China Sea. Over the past few months, China and the Philippines have intensified efforts to reinforce their respective claims to locations in the Spratly Islands and Second Thomas Shoal.¹¹ Concurrently, some countries in the region are trying to increase access to local natural resources. For example, growing energy demands are prompting Malaysia to expand oil exploration and production at locations in disputed waters.

Roughly one-third of global maritime trade passes through the South China Sea. Recent incidents at sea and the increasing presence of ships from various countries have soured diplomatic relations and prompted escalation concerns. A rise in shipping insurance coverage rates is possible, which would impose higher global shipping costs for companies heavily reliant on maritime deliveries. Companies may also face shipping delays and damage to or loss of cargos and vessels if tensions escalate. Businesses dependent on shipping through the sea should both closely monitor what remains a dynamic, evolving situation and ensure that transportation contingency plans are up to date.