KKR Releases 2023 Mid-Year Global Macro Outlook: Still Keeping it Simple
21 June 2023 - 9:00PM
Business Wire
Henry McVey: Today’s asynchronous global
economic recovery is providing attractive opportunities for
investors who are willing to focus on long-term thematic trends
KKR, a leading global investment firm, today released its 2023
mid-year global macro outlook by Henry McVey, CIO of KKR’s Balance
Sheet and Head of Global Macro and Asset Allocation (GMAA).
In “Still Keeping it Simple,” McVey and his team outline why now
is still a good time to look for compelling investing opportunities
across Credit, Equities, and Real Assets, despite challenging macro
conditions that may create a series of rolling recoveries and mild
contractions across different sectors and economies. Against this
complex backdrop, short-term trading strategies are likely to
underperform, and as such, they urge investors to stay the course
on deployment this year, especially when it comes to investing
behind key secular trends such as the energy transition, the
security of everything, and digitalization. Importantly, McVey and
his team note that recent dislocations, particularly in the banking
sector, have created compelling opportunities for investors in
Liquid and Private Credit as well as in Asset-Based Finance. The
team also remains constructive on the long-term outlook for Private
Equity, Small Capitalization Stocks, International Equities, and
Real Assets. The following key points underpin the team’s latest
thinking:
- The global economy is experiencing an asynchronous recovery, as
China flirts with disinflation, while the developed markets will
still need to endure sticky services inflation linked to structural
supply forces.
- The team feels even more convicted that the global economy will
avoid a major economic downturn this year, given lower
unemployment, more fiscal impulses, and higher residual excess
savings, relative to prior cycles.
- However, any economic and earnings snapback in 2024 will likely
be more muted than prior cycles, McVey believes.
- The rise of artificial intelligence has both inflationary and
deflationary characteristics. On one hand, it has the potential to
boost productivity and help address ongoing labor shortages in
developed markets. On the other hand, the technology requires
significant investment in energy infrastructure and cooling
technologies, which could drive inflation higher.
- The U.S. consumer will continue to spend, though wealthier
consumers could face new challenges, given declines in net-worth
and forecasted job losses in more affluent areas of the
economy.
- Traditional inflation hedges such as TIPS and certain REITS may
continue to disappoint in the low real rate environment the team is
envisioning. By comparison, Real Assets such as Infrastructure and
Asset-Based Finance may outperform.
In the piece, McVey and his team make a number of
out-of-consensus calls, which include:
- Stronger GDP growth in 2023, especially in the U.S., where the
team is forecasting real GDP growth of 1.8% versus consensus of
1.1%.
- Below consensus estimates for inflation in 2023 and above
consensus for 2024 in every region.
- Inflation will remain higher this cycle as the key
disinflationary forces of the past decade (globalization, lower
energy prices and labor surplus) now move in reverse.
- EPS will decline more than consensus in 2023 as profit margins
start to contract more meaningfully despite positive topline
growth. We also believe growth will slow more in 2024 and that we
will see a more muted rebound than expected.
- The U.S. labor shortage will continue as lower workforce
participation rates collide with souring demographics and reduced
immigration.
- Capital discipline by U.S. oil producers could push long-term
pricing averages closer to $80 from the pre-pandemic range of
$50-$60.
- Housing is unlikely to collapse to pre-pandemic levels, with
home price appreciation reflecting strong fundamentals such as
accelerating household formation and a legacy of underbuilding
post-GFC.
- Higher long-term yields in the U.S. and Germany due to ECB
balance sheet contraction and long-term energy transition capex in
Europe and markets not fully pricing in the uncertainty around the
pace of Fed rate cuts in the U.S.
In addition to the aforementioned insights, the report details
the GMAA team’s updated views on growth, interest rates,
commodities, currencies, and asset allocation.
Links to access this report in full as well as an archive of
Henry McVey's previous publications follow:
- To read the latest Insights, click here.
- For an archive of previous publications please visit
www.KKRInsights.com.
About Henry McVey
Henry H. McVey joined KKR in 2011 and is Head of the Global
Macro, Balance Sheet and Risk team. Mr. McVey also serves as Chief
Investment Officer for the Firm’s Balance Sheet, oversees Firmwide
Market Risk at KKR, and co-heads KKR’s Strategic Partnership
Initiative. As part of these roles, he sits on the Firm’s
Investment Management & Distribution Committee and the Risk
& Operations Committee. Prior to joining KKR, Mr. McVey was a
Managing Director, Lead Portfolio Manager and Head of Global Macro
and Asset Allocation at Morgan Stanley Investment Management
(MSIM). Learn more about Mr. McVey here.
About KKR
KKR is a leading global investment firm that offers alternative
asset management as well as capital markets and insurance
solutions. KKR aims to generate attractive investment returns by
following a patient and disciplined investment approach, employing
world-class people, and supporting growth in its portfolio
companies and communities. KKR sponsors investment funds that
invest in private equity, credit and real assets and has strategic
partners that manage hedge funds. KKR’s insurance subsidiaries
offer retirement, life and reinsurance products under the
management of Global Atlantic Financial Group. References to KKR’s
investments may include the activities of its sponsored funds and
insurance subsidiaries. For additional information about KKR &
Co. Inc. (NYSE: KKR), please visit KKR’s website at www.kkr.com and
on Twitter @KKR_Co.
The views expressed in the report and summarized herein are the
personal views of Henry McVey of KKR and do not necessarily reflect
the views of KKR or the strategies and products that KKR offers or
invests. Nothing contained herein constitutes investment, legal,
tax or other advice nor is it to be relied on in making an
investment or other decision. This release is prepared solely for
information purposes and should not be viewed as a current or past
recommendation or a solicitation of an offer to buy or sell any
securities or to adopt any investment strategy. This release
contains projections or other forward-looking statements, which are
based on beliefs, assumptions and expectations that may change as a
result of many possible events or factors. If a change occurs,
actual results may vary materially from those expressed in the
forward-looking statements. All forward-looking statements speak
only as of the date such statements are made, and neither KKR nor
Mr. McVey assumes any duty to update such statements except as
required by law.
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Media: Julia Kosygina 212-750-8300 media@kkr.com
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