KKR, a leading global investment firm, today released "High Grading," the 2026 Global Macro Outlook by Henry McVey, CIO of KKR's Balance Sheet and Head of Global Macro and Asset Allocation (GMAA).
In the report, McVey and his team explain why they believe there will be better-than-anticipated GDP and earnings growth across most major regions in 2026, supported by low oil prices, higher savings rates, and accommodative financial conditions. They also note that the global economy remains in the midst of a productivity renaissance, led by digitalization, automation, and accelerating adoption of artificial intelligence, particularly in the United States.
"Looking ahead, our outlook remains constructive in several areas of the market. In particular, the opportunity set in operational improvement stories, collateral-based cash flows, and international markets is as robust as we've seen in years," said McVey. "However, the cycle is more mature, so we believe now is the time to ‘High Grade' portfolios."
As part of this year's Outlook, McVey and his team outline several notable shifts in their macro and market views relative to mid-2025:
- The cost to upgrade portfolios has fallen meaningfully, with compressed spread differentials and valuation premiums making quality easier to access. As such, the team believes that 2026 is an attractive moment to lean into relative value, especially within Public Equities and Credit.
- The team raised its 2026 GDP forecasts in three of the four major regions—and is now above consensus across all three. Despite elevated geopolitical tensions, they see a healthier backdrop for nominal growth, supported by fiscal policy momentum, easing financial conditions, and persistent productivity gains.
- Earnings inflections in Europe, Japan, and Emerging Markets are now above trend for the first time in several years, creating opportunities to broaden portfolios beyond U.S. securities.
- The breakdown of traditional stock-bond diversification is now extending internationally, including in Japan and the U.K., validating a key pillar of the team's Regime Change thesis first articulated in 2020.
- The team has further lowered its China inflation forecast to 0.3%, meaningfully below the 0.8% consensus, reflecting deeper structural pressures in services, consumption, and the labor market.
- Credit losses will continue to normalize faster in 2026, especially in 2021-vintage deals and sub-scale business models facing greater refinancing and operating stress.
- We remain in a multiyear productivity renaissance, but more of this upside is now being reflected in market valuations, especially in Public Equities. The 10-year forward CAGR implied by the S&P 500's current market value is now close to 16%, compared to 8% for much of the prior decade. This reality reinforces the need for High Grading through thoughtful asset allocation, relative value analysis, and sound portfolio construction.
McVey and his team also highlight several mega-themes that they believe represent structural shifts and offer compelling investment opportunities:
- Corporate Reform: Capital Heavy to Capital Light – This theme remains an investor favorite as companies around the world continue to reposition their balance sheets, with opportunities in corporate carveouts in Private Equity and Asset-Based Finance, along with areas like royalties and insurance liabilities.
- Worker Retraining/Productivity – Corporations are likely to continue prioritizing technology-driven productivity gains amid demographic and labor-supply headwinds. Sustained underinvestment from governments and companies in worker retraining will further open the door for private and public capital.
- Consumption Upgrades in Emerging Markets – Capital deployment opportunities span financial inclusion, digital enablement, modernization of retail and e-commerce infrastructure, and rising discretionary demand in sectors such as healthcare and education.
- Security of Everything – Heightened geopolitical tensions, cyber risk, and shifting global supply chains are driving demand for resiliency in critical inputs such as energy, data, transportation, and pharmaceuticals.
- Intra-Asia Trade – As supply chains decouple from Western dependencies and regional demand accelerates, intra-Asia flows are becoming increasingly localized. This scalable trend spans logistics, manufacturing, consumer markets and digital enablement.
- Services as an Investment Theme – The importance of services to the global growth outlook has never been higher, but there are tremendous divergences and varying degrees of opportunity by region.
In addition, the report details the GMAA team's updated views on global economic forecasts, inflation, interest rates, currencies, and capital markets. The report also addresses key investor questions on the team's thinking on topics such as productivity in the age of AI, the outlook for expected returns, and relative value in Credit.
To read the full report, click here. For an archive of Henry McVey's previous publications, please visit https://www.kkr.com/insights.
About Henry McVey
Henry H. McVey joined KKR in 2011 and is Head of the Global Macro, Balance Sheet and Risk team. Mr. McVey also serves as Chief Investment Officer for the Firm's Balance Sheet, oversees Firmwide Market Risk at KKR, and co-heads KKR's Strategic Partnership Initiative. As part of these roles, he sits on the Firm's Global Operating Committee and the Risk & Operations Committee. Prior to joining KKR, Mr. McVey was a Managing Director, Lead Portfolio Manager and Head of Global Macro and Asset Allocation at Morgan Stanley Investment Management (MSIM). Learn more about Mr. McVey here.
About KKR
KKR is a leading global investment firm that offers alternative asset management as well as capital markets and insurance solutions. KKR aims to generate attractive investment returns by following a patient and disciplined investment approach, employing world-class people, and supporting growth in its portfolio companies and communities. KKR sponsors investment funds that invest in private equity, credit and real assets and has strategic partners that manage hedge funds. KKR's insurance subsidiaries offer retirement, life and reinsurance products under the management of Global Atlantic Financial Group. References to KKR's investments may include the activities of its sponsored funds and insurance subsidiaries. For additional information about KKR & Co. Inc. (NYSE:KKR), please visit KKR's website at www.kkr.com. For additional information about Global Atlantic Financial Group, please visit Global Atlantic Financial Group's website at www.globalatlantic.com.
The views expressed in the report and summarized herein are the personal views of Henry McVey of KKR and do not necessarily reflect the views of KKR or the strategies and products that KKR manages or offers. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be relied on in making an investment decision or any other decision. This release is prepared solely for information purposes and should not be viewed as a current, past or future recommendation or a solicitation of an offer to buy or sell any securities or to adopt any investment strategy. This release contains forward-looking statements, which are based on beliefs, assumptions and expectations that may change as a result of many possible events or factors. If a change occurs, actual results may vary materially from those expressed in the forward-looking statements. All forward-looking statements speak only as of the date such statements are made, and neither KKR nor Mr. McVey assumes any duty to update such statements except as required by law.
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Lauren McCranie
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