New York-based alternative assets management giant KKR & Co is bullish on emerging markets with large domestic consumption stories and at the moment India, Indonesia, Vietnam and parts of China appear compelling, a top executive has said.
Henry H McVey, KKR’s head of global macro and asset allocation team, said in his 2018 Global Macro Outlook report that as countries in the emerging market move up the GDP per-capita curve, there will be an increase in demand for healthcare services.
According to McVey, overly optimistic investors are currently overpaying for growth and simplicity in many instances, while at the same time ignoring stories with complexity, uncertainty and cyclicality.
According to the report, recreation, travel and leisure appear to gain market share when compared to basic things that consumers traditionally bought with their disposable income.
McVey has reduced KKR’s global government bond exposure from 6% to 3%.
According to him, global government bonds cannot act either as shock absorbers or as meaningful income producers.
“Within our tiny 3% allocation, our advice is to allocate towards medium-duration local sovereign bonds, including those from India, Indonesia and Mexico,” said McVey.
“If an investor does need to own developed market bonds, very short-term government bonds in the US seem like attractive relative value,” he said.
Among emerging market economies, India was the third most financially vulnerable country after Singapore and Russia during the 2013 taper tantrum. However, its position has significantly improved and financial vulnerability has come down from 95% to 55%, according to the report. The financial vulnerability is compared to historical trend since 1990 and 100% indicates most vulnerable.
Taper tantrum is the term used to refer to the 2013 surge in US Treasury yields, which resulted from the Federal Reserve's use of tapering to gradually reduce the amount of money it was feeding into the economy.