KKR is predicting slower economic growth in China but says there is potential for short-term gains for stocks in 2015. The main driver of this potential is the growth of the services sector - which has overtaken manufacturing and construction as the largest component of the country's GDP (48.2% vs. 42.6%).
The firm is forecasting slower GDP growth through 2018 (6.8% annually vs. 9.9% between 2004 and 2014), KKR said in an extensive economic outlook for the Chinese economy published Thursday. Despite slower growth rates, KKR says it still sees “China as a rising GDP per capita story, as wage growth remains among the highest in the world on a real basis.”
From an investment standpoint, the firm says the shifting economic landscape means equity should be deployed toward the services sector. Namely, it is "most impressed" with strong tailwinds in sectors like health-care services, entertainment/media and environmental services.
