KKR – Global Macro Trends, Dec 2023

In the report by KKR's Global Macro Trends, the authors discuss their outlook for the upcoming year. They believe that 2024 will be an important transition year in their Regime Change thesis. They forecast below-consensus inflation for the next 12 months, which presents a temporary disinflationary opportunity for tactical investors to position their portfolios. However, the authors maintain their longer-term thesis of a 'higher resting heart rate' for inflation due to factors such as fiscal impulse, labor costs, energy transition, and global supply chain restructuring. The authors also highlight the push and pull between loose fiscal policy and tight monetary policy, which contributes to increased volatility and dispersion against a backdrop of rising geopolitical tensions. They suggest that global allocators need to adopt a 'glass half full' approach and direct capital towards investment themes that have attractive growth characteristics and address current obstacles in the global economy. The authors identify several investment themes that they have high conviction in as they enter 2024, including Security of Everything, Digitalization, Industrial Automation, Intra-Asia Connectivity, and Global Infrastructure. They emphasize that there is still significant dispersion and value to be found within and across asset classes and regions for long-term investors. They challenge the notion that the S&P 500 is trading at lofty valuations and the US economy is headed for a hard landing, asserting that there are compelling equity stories and opportunities for growth and repositioning of businesses. They also highlight the attractiveness of Liquid Credit, infrastructure investments, and capital solutions opportunities in Asset-Based Finance and Opportunistic Credit. Overall, the authors believe that there are ample opportunities to invest in major themes and hedge against the challenges facing the global economy, leading them to view the investing landscape with a positive outlook.