KKR's Outlook For The Stock Market And The Global Economy In 2013
"[W]e are somewhat pessimistic relative to the consensus on earnings growth in early 2013," writes Henry McVey, KKR's Head of Global Macro & Asset Allocation.
"However, we are probably more optimistic than the consensus in our belief that the global economic cycle, the private sector in particular, is still on track and will recover as we head into 2014. Indeed, after a short, sharp pause in 1Q13, we actually see a notable re-acceleration of economic growth and profits in 2H13."
Here are the five key macroviews they have for the year (Head to KKR.com for full details).
- "First, our models point towards a very slow first half of the year, followed by a notable rebound in the second half."
- "Second, we believe the Chinese economy is re-accelerating, but investors must shift their focus towards growth in GDP per capita, not just growth in GDP."
- "Third, despite massive stimulus, we think that global inflation in the developed markets remains low in 2013."
- "Fourth, the European fiscal multiplier is now larger than in the past, which we believe means below-consensus growth in the region again this year."
- "Fifth, we think that correlations continue to unwind."
Here's KKR's outlook for the world in a nutshell:
"[S]tocks at current levels appear compelling for longer-term investors," writes McVey.
"We still expect a lot of volatility over the next few years as governments deleverage," writes McVey. "[B]ut we think the time to reduce equity exposure has largely passed. Trading multiples are now at the level where they can act as a buffer rather than the detriment they were for the decade following the year 2000."
KKR's base case has the S&P 500 heading to 1,550 by the end of the year. Here's McVey:
Given this view, we feel comfortable stating that – under our base case – the S&P 500 appreciates about 11-12% in 2013 towards 1550 from its current level of 1400. In addition to forecasting positive earnings growth this year (which we did not in 2012), we are also using a slightly higher multiple to reflect the positive impact of heavy central bank intervention on the equity risk premium. We also think that the sustainability of the recovery, which includes strength from cyclical sectors like housing, autos, and energy, may become more obvious as we move through the second half of the year. Finally, ...the quality of earnings composition is set to rise significantly in 2013 as financials become a much smaller piece of the overall mix.
KKR's full 28-page outlook is loaded with great charts and analysis. Read it here.
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