Thoughts From the Road: Europe and Asia | October 2026

KKR argues that a broad investment boom, rather than AI alone, is extending the global cycle and keeping inflation and interest rates structurally higher.

• Meetings in London and Singapore led KKR to conclude that Defense, Infrastructure, Energy and supply-chain resilience are competing with AI for capital, labor and power, making the cycle broader, more durable and more inflationary than previously expected.
• The cycle is being driven increasingly by fixed investment rather than leveraged consumption, supporting productivity, real wages and nominal growth but worsening cost-of-living pressures; KKR raised its 2026 forecasts for the ECB rate to 2.75%, the Bank of England rate to 4.0%, the 10-year bund yield to 3.4%, the gilt yield to 5.25% and the 10-year JGB yield to 3.1%.
• KKR remains concerned about divergence: corporate profits and productivity have risen faster than worker compensation, while roughly 30% of U.S. hyperscaler capex in 2026–2030 is expected outside the U.S.; Japan’s AI-related value chain represents less than 3% of GDP but contributed more than 20% of 2025 GDP growth.
• Europe appears more resilient than expected because business investment, defense, infrastructure, energy and regional trade are offsetting weak consumers and housing; U.K. real business investment is about 10% above pre-COVID levels, while Germany is exporting more industrial goods to Poland and neighboring European markets and less to China.
• In Asia, KKR sees opportunities beyond semiconductors in equipment, materials, chemicals, power and infrastructure, alongside Korean corporate reform, Singaporean financial services and greater allocator interest in Asian infrastructure, equities and credit.

Takeaway: Investors should favor the investment boom’s beneficiaries—including European infrastructure, renewables, industrials, cybersecurity, logistics and security themes, plus Asian AI enablers and reform stories—while allowing for fiscal and political risks in France, persistent pressure on consumers and housing, and the possibility that markets have priced too many near-term rate hikes.