Photo: Henry McVey © KKR

Henry McVey: The cycle continues, but the “Divergence Conundrum” is intensifying.

KKR, a leading global investment firm, today publishes “The Divergence Conundrum,” its 2026 mid-year global macro outlook, authored by Henry McVey, KKR’s Chief Investment Officer for balance sheet activities and Global Head of Macro and Asset Allocation (GMAA) strategy.

In this report, Henry McVey and his team argue that the global economy continues to expand, but in an increasingly uneven fashion, entering a phase of greater divergence. “The cycle is not over, but it is becoming more selective,” Henry McVey writes, as economic profits become increasingly concentrated, driving wider disparities across regions, sectors and asset classes. Drawing on historical parallels with the 1870s, the 1920s and the late 1990s, the team says such periods of divergence are not unprecedented, even if the current backdrop may have a broader reach.

They describe this environment as the “Divergence Conundrum”: a macro and market backdrop in which an expanding productivity boom extends the cycle, while geopolitical fragmentation, energy-security concerns and strategic competition help keep inflation structurally higher. In their view, this setting will make central banks’ job increasingly difficult in a world moving away from the efficiency-led model that defined the pre-Covid era and toward one that places greater emphasis on resilience, redundancy and control.

Against this backdrop, the report encourages investors to focus on high-quality assets, diversify into nominal GDP-linked assets and place greater emphasis on operational improvement levers. That approach points in particular to corporate carve-outs, asset-backed cash flows, energy and power infrastructure, as well as investments tied to the “Security of Everything” theme. The team is also more cautious on long-duration sovereign bonds, 2021-vintage leveraged buyouts, exposure to low-income households and assets that rely on a return to a low-inflation, low-rate and abundant-liquidity environment.

The report also reaffirms the team’s conviction in certain international markets, notably in Asia, where corporate reform, AI-related infrastructure and the upgrading of consumption remain key themes. In Europe, the team believes the region is fragmenting rather than weakening as a whole, with peripheral economies — notably Spain and Italy — outperforming the industrial core, supported by domestic demand, tourism and investment boosted by fiscal measures.

The report also highlights a number of developments that markets may be underestimating. Key takeaways include:

• The “Security of Everything” theme is broader than expected, extending beyond defense to areas such as food, water, energy and critical inputs. Security is becoming, in the team’s view, a strategic priority for business leaders and policymakers alike.
• AI-related productivity gains are only beginning to show up in 2026. Since the pandemic, productivity gains have mainly been driven by automation and the digitalization of services, suggesting a broader and more durable cycle than a simple technology story.
• Inflation is expected to remain structurally above consensus in most regions, with the exception of China, owing to less disinflationary goods inflation and more frequent geopolitical shocks.
• The global monetary easing cycle is losing momentum: as of end-May 2026, 10% of major central banks were raising rates, versus 3% at end-2025, while only 40% were still cutting.
• Oil prices are likely to remain firmer than the medium-term futures curve implies, due to lower inventories, the need to rebuild stocks, disciplined shale output, OPEC+ fiscal incentives and persistent geopolitical risk.
• In this cycle, governments — not corporations or households — are the most leveraged, which tends to increase the correlation between bonds and equities and reduce the role of bonds as a shock absorber in portfolios.
• Portfolio construction is becoming a more important source of returns: in a more divergent environment, manager selection, diversification and investment discipline will be decisive.
• Asia remains a high-conviction region, with opportunities supported by corporate reforms, AI-linked infrastructure and rising consumption, particularly in private equity, infrastructure and credit.
• The team favors private markets strategies built on operational improvement rather than financial engineering, with value creation driven more by execution, governance and productivity.

The report also sets out the GMAA team’s latest forecasts for global growth, inflation, interest rates, currencies, capital markets and relative valuations. It also addresses several key investor questions, including global bonds, expected returns and opportunities in credit markets.

Link to the full report and Henry McVey’s previous publications:

• To read the full report, click https://www.kkr.com/content/dam/kkr/insights/pdf/2026-mid-year-outlook.pdf
• To access the archive of previous publications, visit https://www.kkr.com/insights

About Henry McVey 

Henry H. McVey joined KKR in 2011 and leads the Macro team. Mr. McVey is also the firm’s Chief Investment Officer for the balance sheet, oversees enterprise-wide market risk at KKR and co-leads KKR’s strategic partnerships. In this role, he serves on the firm’s Global Executive Committee and Risk and Operations Committee. Before joining KKR, Mr. McVey was a Managing Director, senior portfolio manager and Head of Global Macro and Asset Allocation at Morgan Stanley Investment Management (MSIM). 

Learn more about Mr. McVey: https://www.kkr.com/about/our-people/henry-h-mcvey

About KKR

KKR is a leading global investment firm that offers alternative asset management, capital markets and insurance solutions. KKR aims to generate attractive returns through a patient and disciplined approach, employing top experts and supporting the growth of its portfolio companies and their ecosystems. KKR acts as sponsor of funds focused on private equity, credit and real assets, and has strategic partners that manage hedge funds. KKR’s insurance subsidiaries offer retirement, life insurance and reinsurance products managed by The Global Atlantic Financial Group. Any reference to KKR investments may include the activities of the funds it sponsors and its insurance subsidiaries. For more information on KKR & Co. Inc. (NYSE: KKR), please visit its website www.kkr.com and its X account @KKR_Co. For more information on Global Atlantic Financial Group, please visit the Global Atlantic Financial Group website at www.globalatlantic.com

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