Mumbai: With more than six times as many millennials in Asia as in the US and Europe combined, the Asian millennial is expected to reshape the global consumer market, said private equity giant KKR on Wednesday in its Global Outlook report.
With increasing purchasing power, millennials are driving a secular trend of consumers moving away from ‘things’ and towards ‘experiences’,” the KKR report added. “As we travel around the globe, particularly in Asia (where there are more than 800 million millennials), we see that technology has made the movement towards experiences over things a secular trend with far ranging implications in major sectors such as healthcare/wellness, leisure, financial services and entertainment.”
Nowhere is this shift more prevalent than in China, with its outsized millennial population, which KKR pegs at around 330 million, as against a 66 million millennial in the US.
Chinese millennials also save less, and allocate three times more of their income to leisure.
“Personal financial services, healthcare services, wellness/beauty, healthier foods, and food safety should also be major long-term beneficiaries of the environment we are envisioning. We also anticipate continued demand for China to tackle air, water and soil pollution, likely creating opportunities for companies that address these issues,” the report added.
According to the American PE firm, deconglomeratization is another major theme that is expected to gather momentum in 2019. “As corporations around the globe look to optimize their global footprints in a world that is increasingly turning domestically focused, we believe that this transition will create a significant opportunity for investors to buy, repair, and improve non-core assets from regional and global multinationals,” the report said.
To some degree, outsized activism in the public markets is forcing CEOs to refine their global footprints, which has been a boon to private equity investors, it said, adding that many corporations used low-cost funding to over-expand in recent years.
With global trade now slowing, and domestic agendas taking precedence, KKR expects more firms to hive off unprofitable subsidiaries and non-core businesses. “This trend has fully gained momentum in Japan, Europe, and India, and we expect other business communities to move this way over the coming months and quarters,” it said.
According to KKR, investors will have to tackle several major changes and macro headwinds in the global markets, including a structural shift from monetary policy to fiscal policy, tightening liquidity conditions amid higher real rates, and the rise of geopolitical uncertainty that warrants a higher risk premium than in the past.
KKR added that another major theme expected to play out in 2019 is capital structure complexity. The firm said it is seeing some “good company, bad capital structure” opportunities emerge, particularly outside the US.
“As we begin 2019, we definitely tilt more positive in our global asset allocation and macro positioning, despite our call for a weaker economic environment,” said Henry McVey, head of global macro and asset allocation, KKR.
However, it is not business as usual in the global capital markets these days, he said, adding: “In our humble opinion, the game has changed.” McVey also said that public equities are now pricing in a recession.