KKR Releases 2019 Global Macro Outlook
Henry McVey Sees Value in Liquid Markets, but Acknowledges a New Reality for Investing: “The Game Has Changed”
“As we begin 2019, we definitely tilt more positive in our global asset allocation and macro positioning, despite our call for a weaker economic environment,” McVey says. “However, it is not business as usual in the global capital markets these days. In our humble opinion, the game has changed.”
Specifically, McVey and his team see four major influences that will require a different approach to asset allocation for investors in the years ahead:
1. A structural shift from monetary policy to fiscal policy is under way
2. Technology, while still an incredibly powerful agent of change in the global economy, now faces more valuation and regulatory headwinds than in the past
3. Tightening liquidity conditions amidst higher real rates are macro headwinds that must now be considered
4. The rise of geopolitical uncertainty warrants a higher risk premium than in the past
Despite these crosswinds, McVey’s message is not to head to the sidelines. Rather, he advocates staying invested and electing thoughtful asset allocation preferences by taking into account the key macro themes outlined throughout his report. By doing so, he believes investors with a long-term game plan and the ability to buy complexity amidst uncertainty can drive above-average returns from current levels.
The report details the GMAA team’s updated asset allocation model for 2019, including the team’s view on interest rates, inflation, oil, stocks versus bonds, and cycle duration, as well as geographic views, specifically regarding the economic outlook for the U.S.,
In terms of key calls for 2019, McVey and his team believe public equities are now pricing in a recession, with liquid credit not far behind. So, for the first time in three years, he is now moving to an overweight position in public equities, including the U.S. McVey also remains constructive on cash flowing assets linked to nominal GDP, including infrastructure and asset-based finance. Though he thinks the role of government bonds in global asset allocation is structurally changing, he sees good value in the short-end of the curve, particularly in the U.S. Finally, he sees the dollar peaking against many currencies in 2019.
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KKR is a leading global investment firm that manages multiple alternative asset classes, including private equity, energy, infrastructure, real estate and credit, with strategic partners that manage hedge funds. KKR aims to generate attractive investment returns for its fund investors by following a patient and disciplined investment approach, employing world-class people, and driving growth and value creation with KKR portfolio companies. KKR invests its own capital alongside the capital it manages for fund investors and provides financing solutions and investment opportunities through its capital markets business. References to KKR's investments may include the activities of its sponsored funds. For additional information about
The views expressed in the report and summarized herein are the personal views of
Kristi Huller or Samantha Norquist