More US capital flowing to Asia as dollar weakens

GLOBAL INVESTORS with heavy US exposure are steadily shifting more capital to Asia as the dollar loses steam and the region’s fundamentals shine, according to the co-chief executive officer of KKR & Co.

While the rebalancing doesn’t amount to a US retreat, global investors are channeling their “incremental dollar” to Asia, where capital raising and data-center infrastructure are emerging as major themes, Joe Bae said. The region’s institutions remain underweight in alternative investments, and its vast household savings offer a major source of capital, he said.

“As the dollar weakens and other markets like Asia continue to have these fundamental tailwinds in terms of growth, you’re going to see people diversify their portfolios more and more to Asia over time,” Mr. Bae said in a Bloomberg Television interview with Haslinda Amin.

The New York-based buyout giant is ramping up in Japan, deploying capital at five times the pace of a decade ago, making it KKR’s most active investment destination outside the US. Japan is now its largest Asian market, accounting for 40% of regional assets.

With $14 trillion in household wealth, half still in cash, the country offers rich opportunities as savers move into new asset classes, Mr. Bae said.

Japan’s new Prime Minister Sanae Takaichi shares many of the economic views of former leader Shinzo Abe, who championed the reflationary policies known as “Abenomics.” Ms. Takaichi has long backed increased government spending to spur growth and has criticized the Bank of Japan for moving to tighten monetary policy. Mr. Takaichi won a parliamentary vote Tuesday to become the first woman to clinch the nation’s top leadership job.

“Our hope and expectation is this new prime minister will be committed to that same reform path,” Mr. Bae said, in an interview from Singapore aired Wednesday. “If that happens, I think the future is very, very bright for Japan.”

The asset manager is also doubling down on India, its No. 2 Asian market. KKR is making bets on toll roads, renewables and digital infrastructure as the country’s demographics, consumption and manufacturing boom fuel demand. India will be one of KKR’s largest destinations for infrastructure capital going forward, he said.

CHINA WARY
While Asia stands to be a key beneficiary of global diversification, major North American investors remain wary of China amid elevated US tensions and lingering losses from the government’s earlier crackdown on private enterprise. As recently as 2020, China accounted for more than half of Asia-Pacific’s deal value, but its share fell to just 27% in 2024, according to Bain & Co.

Investor sentiment toward China won’t truly turn around until private equity firms see a clearer path to monetization, Mr. Bae said. Given the current geopolitical climate, the “aperture of what’s investible for us today is a little bit more narrow than what it was.”

Exiting investments will be the key catalyst for China in the near term, though the outlook remains subdued. Most of the activity over the next three to five years will consist of private equity firms doing deals with each other, as strategic buyers take longer to return. Still, KKR remains focused on domestic consumption and value-added services, which Mr. Bae said continue to be China’s investment sweet spot.

“We’ve definitely not pulled back from China in terms of our commitment there,” he said. KKR recently completed a control buyout of Dayao Beverage, China’s largest homegrown soft drink brand, in a deal valued at about $2 billion, according to Mr. Bae. — Bloomberg