The KKR logo on the floor of the New York Stock Exchange on August 23, 2018.
Brendan McDiarmid | Reuters
US-based investment giant KKR said it expects the AI-driven productivity boom to be in its infancy, but growth may be concentrated in some sectors.
This was revealed in an interim report distributed by the company on Thursday.
Productivity gains from AI will be realized in the coming years, but “at the cost of increased strategic competition, economic growth is likely to be concentrated in fewer industries and, in some cases, more extreme than anything we have seen since the beginning of the Second Industrial Revolution in the 1870s,” writes Henry H. McVeigh, head of global macro asset allocation and KKR balance sheet CIO.
Mr. McVeigh described an investment environment in which parts of the economy and market are “starving” while other parts are “flushing.” He pointed to technology, high-end services and government spending as “very concentrated” growth areas.
KKR said the defense and power sectors are the most likely winners when looking at broader long-term trends. “Despite rising input costs, there is widespread interest in supply chain safety and resilience across countries and industries,” the report said.
Here are three other key takeaways from McVeigh for investors.
Asia will continue to outperform in public and private markets
“We think Japan and South Korea still look cheap, as earnings in 2026 and 2027 are likely to pick up unexpectedly,” McVeigh said. He pointed out that the main reason KKR remains less optimistic about the country’s assets is the decline in real estate prices in China.
Chinese yuan rises
However, KKR predicts that the Chinese currency will appreciate as the US dollar peaks, reaching around 6.5 yuan per US dollar by 2027.
wheat
“Agriculture is increasingly joining energy security, defense, and critical minerals as strategic sectors with policy support likely to attract sustained investment,” McVeigh said, noting that the USDA expects 2026-2027 U.S. wheat production to be the lowest since 1972 and prices to rise to three-year highs.
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