Thoughts from the Road – Asia: Beating to a Different Drum

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Of the many changes associated with COVID, one of the most impactful for me personally was the loss of routine and ritual, including being able to travel and spend time with others outside of my day-to-day life in New York City. Many of you who have read my insights over the years know that I’ve been going to Asia fairly regularly since 1995. My first trip to the region, which took place the summer before I enrolled in business school, involved some traveler’s checks, a back pack, and four budget airline connections to get there from Richmond, Virginia. I also had no cell phone – only a determination to learn more about Asia, China in particular. Importantly, though, that trip made me realize early on in my career how that emerging region would likely reshape the global economy. It also inspired a strong desire – which I was able to enact until the onset of COVID – to return as frequently as possible to deepen my knowledge of all that Asia has to offer both economically and culturally.

So a few weeks ago, for the first time since the beginning of COVID, I was able to return to Asia. Specifically, I traveled to Singapore and Tokyo, spending time with members of my Asia ‘local’ team who focus on macro and portfolio construction – Frances Lim, Changchun Hua, Deepali Bhargava and Hemant Pandey – as well as other colleagues who cover asset classes and lines of business for KKR in the region. It was, for me personally, a wonderful opportunity to not only refresh my view on many parts of Asia, but also to better compare and contrast investment opportunities and macro risks that we are seeing across the four major regions where KKR does business. See below for details, but our key conclusions are as follows:

Within a world that is enduring an asynchronous recovery, Asia is beating to a different drum. As we show in Exhibit 1, Asia still has the world’s strongest regional growth in absolute terms. However, China is lagging badly, particularly in nominal terms, relative to pre-COVID times. The good news is that slow growth in Asia is still better than what we are seeing across all of Europe and many parts of the United States. Moreover, domestic and international tourism are now rebounding in most countries in the region, which should help inspire more growth in 2023 as well as narrow output gaps.


We Expect Growth in Asia to Hold Up Better Than the U.S. and Europe…

Graph of KKR Real GDP Growth Forecasts
Data as at August 31, 2022. Nominal GDP weighted. Source: National statistical agencies, central banks, Haver, KKR Global Macro & Asset Allocation analysis.


…Though Growth Trends Differ Significantly by Country Within the Region

Graph of Asian Country Growth Trends
…Though Growth Trends Differ Significantly by Country Within the Region

The second piece of good news is that in the aggregate, Asia also has low inflation (Exhibits 13 and 14). In fact, central banks in China and Japan are actually embracing loose monetary policy to stimulate growth. Given that we are again forecasting above consensus inflation in 2023 for both the United States and Europe, Asia felt like somewhat of a ‘safe haven’ from a central banking perspective.