KKR Releases “Hot Spots” by Henry McVey
New Macro Report Delves into Implications of Important Geopolitical Regions for Investors Today
“Both China and the
In his latest report, McVey emphasizes that we are living in an increasingly complicated world – one that requires investment flexibility, including operational expertise as well as the ability to move up and down the capital structure at different points in the cycle.
In the piece, McVey outlines several key investment conclusions from his trip. They are as follows:
- Our key takeaway was that there may or may not be a headline win around trade eventually, but the global competitive landscape has shifted permanently across both continents, particularly as the geopolitical and strategic importance of technological prowess across industries increases. If we are right, then a different investment playbook than what worked for the last 25 years is now required.
- We remain of the view that rates are likely to stay lower for longer, which has huge investment implications for both individual and institutional savers. In terms of the global inflation outlook, our travels lead us to believe that we are stuck somewhere between disinflation and deflation. Recent weakness in China’s currency will only exacerbate this trend, we believe.
Chinacontinues to be the most innovative technology market that we visit each year, while Europeis trying to close the gap. Driven by 330 million millennials that are coming of age, the opportunity around Big Data, Artificial Intelligence, and 5G remains outsized within both the consumer and corporate segments of China. Meanwhile, in Europewe think that Berlinhas clearly emerged as the Continent’s Silicon Valley, and the significant opportunity set that we see across private Technology investments in the region make us even more bullish that European Private Equity can handily outperform European Public Markets.
- We expect more geopolitical volatility ahead, and we now assign a 50% probability to a Hard Brexit. The potential temporary dysfunction from a disorderly departure, particularly as it relates to business uncertainty in the private sector, likely deserves more attention than it is getting from investors.
- Given the uncertainty, we think that the opportunity to buy complexity at a discount remains outsized. Interestingly,
Asiaseems to be gaining on Europein terms of the ability to transact. Our conversations in Beijingwith senior executives now lead us to believe that there is a forthcoming wave of deconglomeratization in Chinathat could soon rival what we are seeing in Europethese days.
“In our latest report, our message is to spend the extra time to learn about the ‘hot spots’ around the world, and with this knowledge, discern where to lean in and lean out in the coming quarters, as periodic dislocations inevitably bubble up. Complexity and uncertainty breed opportunity for those who are prepared,”
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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 Cara Major