German asset manager DWS, previously part of Deutsche Bank, has just released its market outlook for 2025 and asset allocation.

US stock exchanges are lagging far behind their counterparts in Europe and in China this year, according to Vincenzo Vedda, global chief investment officer at DWS. Things such as stubborn inflation and dull economic outlooks are increasingly pushed forward on US capital markets.

The outlook for China is much more upbeat. “We assume that China’s outperformance of other emerging markets, which we have observed since mid of January, is here to stay,” Vedda said in a note. “There is more and more optimism all over the country, and the ailing real estate market seems to have bottomed out although not turned around yet,” he continued. “As soon as local consumers are getting more confident, corporate profits, which have experienced more and more downside corrections for a while, are expected to stabilise and support stock markets.” 

Equities
US
“2025 is set to become another year of sound US corporate profits, however, currently very high valuation levels might not be sustainable in the long run,” Vedda said. “A further sell-off could offer good opportunities to move in. We slightly reduce our S&P 500 target by March 2026 to 6,300 points (from 6,500 points).”

Europe
“European equities have had a good run since the start of 2025 and are no longer that cheaply valued. Dividend yields are no longer higher than bond yields,” Vedda said. “We forecast moderate growth of corporate profits. Defence, industrials and banks appear to be the most promising sectors.”

Japan
“The Japanese stock market has performed very well in the past two years. A recovery of the global economy in the second half of 2025 and a stronger Chinese economy could be supportive, while tariffs and a stronger yen might have negative impacts,” Vedda continued. “In the long run, we favour a mix of selected export and domestically-oriented corporations. The target of the MSCI Japan by March 2026: 1,780 points (previously 1,770).”

European asset manager Amundi also believes that the correction in areas of excessive valuations in the US equity market could continue, leading to a continuaiton of the recent rotation in favour of Europe and China.

Fixed income view
“In the United States, as well as in the eurozone, central banks are expected to continue cutting rates, even if the scope might be somewhat smaller than expected. This would support the prices of short bonds – and is, however, already largely discounted,” Vedda said.

DWS currently prefers bonds with shorter and medium maturities, with short bonds with a remaining life of three years becoming somewhat less attractive due to expected rate cuts. Long-term US rates are expected to remain high, the spread to short maturities should widen. By March 2026, Vedda expects a yield level of 4.50 per cent for 10-year bonds.

Currencies view
Euro/dollar
Since its peak in mid-January, when the dollar had almost reached euro parity, the dollar has significantly fallen. Vedda believes that this is likely to continue. Over a 12-month horizon, Vedda expects a strengthening of the euro versus the dollar.

Alternatives view
Gold
Gold has gained roughly 12 per cent this year, and total price gains in the last 12 months amount to 31 per cent. Despite this high price level, Vedda sees upside potential for gold in uncertain times like these. “Over a 12-month horizon, the gold price might well rise to 3,250 dollars per ounce,” he said. Wealth managers, such as UBS and Pictet in Switzerland, are also positive on gold.