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KKR Releases Report on Emerging Market Equities by Henry McVey

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KKR today released a new outlook piece on emerging markets: Equity Market Equities: The Case for Selectivity. In the report, authored by Henry McVey, Member & Head of Global Macro and Asset Allocation, McVey points out that harnessing the attractive component of rising GDP per capita in the emerging markets is actually much more complicated than it seems. It requires that an investor work hard to truly identify the right themes – and equally the appropriate vehicle – to deliver on key macro tailwinds. In too many instances investors fail to appreciate how levered a country or regional index is to one company, sector, and/or local trend. As a result, the risk premium associated with the investment can be vastly understated.

“While the recent downturn in both valuations and return on equity might suggest that now is the time to begin buying public emerging market equities en masse, we do not hold that view,” McVey writes. “Leverage remains near all-time highs, which likely means further dilution for equity holders.”

McVey also believes currencies will continue to be a headwind for the performance of emerging market equities, and as such, the underperformance cycle could be longer than expected. He cautions investors to remain patient and selective about how they gain exposure to the asset class.

Some of his other conclusions include:

1. A significant portion of the underperformance of emerging markets, or EM, public equities in recent years has been linked to multiple contractions in the public markets.

2. Despite GDP growth that is notably faster than in the developed markets, earnings in the EM world have lagged badly.

3. Finally, EM country and regional indexes often have major skews that can – at times – negatively affect performance. In particular, large exposures in EM public market indexes to state-owned enterprises can often dent long-term performance.

McVey says that selectively increasing exposure to emerging market public equities as well as considering non-traditional EM alternatives can help investors take advantage of the benefits of owning the asset class. In the full report, McVey his thoughts on how to allocate to the asset class and details his investing thesis.

Links to access the full report as well as an archive of our previous publications follow:

About KKR

KKR is a leading global investment firm that manages investments across multiple asset classes including private equity, energy, infrastructure, real estate, credit and hedge funds. KKR aims to generate attractive investment returns by following a patient and disciplined investment approach, employing world-class people, and driving growth and value creation at the asset level. KKR invests its own capital alongside its partners’ capital and brings opportunities to others through its capital markets business. References to KKR’s investments may include the activities of its sponsored funds. For additional information about KKR & Co. L.P. (NYSE:KKR) , please visit KKR’s website at

The views expressed herein are the personal views of Henry McVey of KKR and do not necessarily reflect the views of KKR. This information is not research and should not be treated as research. It does not represent valuation judgments with respect to any financial instrument, issuer, security or sector that may be described or referenced herein and does not represent a formal or official view of KKR. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own views on the topic discussed herein. There can be no assurance that an investment strategy will be successful. Historic market trends are not reliable indicators of actual future market behavior or future performance of any particular investment which may differ materially, and should not be relied upon as such. This information should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or to adopt any investment strategy. This release may contain projections or other forward-looking statements. Neither Mr. McVey nor KKR assumes any duty to update such statements.

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