MUMBAI: Global investment firm KKR has stated that central banks worldwide will begin tightening monetary policy this year. The firm has expressed caution regarding long-duration government bonds, over-leveraged deals from 2021, exposure to lower-income consumers, and assets that rely on a return to the previous regime of low inflation, low interest rates, and abundant liquidity.
KKR's Mid-Year Outlook
In its mid-year outlook report titled 'The Divergence Conundrum,' KKR warned that the global easing cycle is coming to an end and that central banks may maintain restrictive policies for an extended period. This is due to inflation proving to be more persistent and economic growth more resilient than previously anticipated.
Key Insights from KKR
Henry H McVey, head of global macro and asset allocation at KKR, noted, "The easing cycle is fading, and the next debate may be more about how long policy stays restrictive." He added, "Inflation headwinds will also likely stay a bit higher for even longer, and central banks could be more restrictive than originally thought."
The report signals a clear shift in global monetary policy this year. KKR flagged multiple areas of caution for investors. "In our view, long-duration treasuries have become a less reliable safe haven since the onset of Covid," the report stated.
Areas of Caution
- Long-duration government bonds
- Over-leveraged deals from 2021
- Exposure to lower-income consumers
- Assets dependent on a return to low inflation, low rates, and abundant liquidity
