Financial Markets & Economy

KKR today released the 2018 Global Macro Outlook piece by Henry McVey, Head of Global Macro and Asset Allocation (GMAA). In “You Can Get What You Need,” McVey outlines his perspective on the current investing environment.

“As we are poised to enter the 104^th month of economic expansion amidst the second longest bull market on record in the United States, it is definitely harder to get ‘what you want’ when it comes to uncovering new and compelling investment opportunities. The good news is that our work shows that investors can still ‘get what they need’ in order to generate returns in excess of their liabilities.”

Overall, a major underpinning to Henry McVey and the GMAA team’s view for 2018 is that overly optimistic investors are currently overpaying for growth and simplicity in many instances, while at the same time ignoring stories with complexity, uncertainty, and/or cyclicality. Therein lies a huge, long-tailed investment opportunity to arbitrage the notable bifurcation that has already begun to occur across many parts of the global markets, according to the team.

Against this backdrop, the report outlines several actionable investment themes that multi-asset class investors should consider weaving into their portfolios in 2018 and beyond, including:

1. Equities Having More Potential Upside Than Credit

2. The Move Towards Mid-Cycle Phase of Emerging Markets Recovery

3. Central Bank Normalization

4. Shifting Preferences in Private Credit

5. Buy Complexity, Sell Simplicity

6. Experiences Over Things

7. Arrival of a Different Kind of ‘Political Bull Market’

In addition to the aforementioned themes, the report details specific macro influences that factor into the GMAA team’s updated asset allocation model for 2018, including GDP targets around the globe as well as outlook for earnings, rates, oil, cycle duration and expected returns. 

Read/Download KKR’s 2018 Global Macro Report

According to Justin Lahart of the Wall Street Journal, volatility has seemingly vanished from the stock market, and the simple reason is that economy itself is so calm.

Economic volatility within the U.S. and across the globe is incredibly low, and with this low volatility comes the risk that investors may become far too complacent.

Over the past three years, the standard deviation of the annualized change in U.S. GDP has only been 1.5 percentage points, which is historically about as low has it has ever been. Amazingly enough, global GDP is displaying the same trend.

According to J.P. Morgan economist Joseph Lupton, this lack of volatility not only stems from less shakiness within individual economies, but also because they have become less correlated with one another.

From an investment standpoint, low economic volatility is a good thing, because investors get hit with fewer surprises, however, it can also lure them into complacency and leave them much more vulnerable if volatility were to increase in the future.

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