As we step into 2026, the global economy is demonstrating unexpected resilience amidst multiple challenges.
The International Monetary Fund (IMF), in its latest World Economic Outlook report, has slightly raised its global economic growth forecast for 2026 by 0.2 percentage points to 3.3%, a move mirrored by the World Bank. Both institutions noted that, despite uncertainties such as escalating trade frictions and geopolitical tensions, expanded investment in artificial intelligence (AI), accommodative financial conditions, and supportive fiscal policies from major economies collectively act as "shock absorbers" for the economy.
During the recent 19th Asian Financial Forum held in Hong Kong, Vincenzo Vedda, Global Chief Investment Officer of the trillion-euro asset manager DWS, shared his insights.
He believes that the current high market valuations do not constitute a bubble but are instead supported by solid corporate earnings and an AI-driven productivity revolution, distinguishing this period from the "irrational exuberance" of the 1990s. The sustainability of this "boom" will ultimately depend on whether anticipated economic growth materializes.
Established over 60 years ago, DWS is a majority-owned asset manager of Deutsche Bank with approximately 5,000 employees globally. It manages total assets of €1.085 trillion (as of December 31, 2025), offering assets and solutions spanning active, passive, and alternative investments.
On the hot topic of gold, Vedda clearly stated that gold has become an indispensable "must-have" in current investment portfolios. The logic behind this is gold's extremely low correlation with traditional assets, making it an effective risk diversification tool. Furthermore, it is driven by long-term structural factors, including elevated global fiscal deficits and continued central bank purchasing.
Regarding the stock market, he emphasized the need for a selective strategy in AI investments: "Investors should pay particular attention to companies at key 'bottleneck' points in the AI value chain. These companies often possess pricing power and are indispensable suppliers within the ecosystem."
With the implementation of China's 15th Five-Year Plan recommendations, which emphasize technological self-reliance and strengthening domestic demand, Vedda is optimistic about the structural opportunities in China's technology, consumer, and healthcare sectors. He anticipates a "slow bull" market pattern for Chinese equities, noting the attractive potential for profit growth and reasonable valuations in tech companies.
2026: A Market of "Rational Exuberance"
Looking back at 2025, what were DWS's most successful predictions or investment strategies?
Overall, our outlook for 2025 was quite positive, and this proved correct. We implemented an overweight position on European markets, a strategy that performed very well. Concurrently, we anticipated a steepening yield curve, which also materialized.
However, alongside the generally positive performance, two developments surprised us. First, the depreciation of the US dollar was greater than expected.
Second, the rise in German government bond yields also exceeded expectations. We initially did not anticipate yield increases, but as fiscal stimulus packages passed through parliament smoothly, market expectations for growth were revised upwards, leading to a noticeable rise in real interest rates. Therefore, despite these two surprises, the effectiveness of our core strategies supported a satisfactory outcome for the year.
This year, you have used the term "rational exuberance" to describe your outlook for the 2026 market environment. Could you elaborate on what "rational exuberance" means?
We remain positive on 2026. We call it "rational exuberance" because thirty years ago, in 1996, with the rise of the internet, there was great optimism about the new technology, and then-Fed Chairman Alan Greenspan termed the market conditions as "irrational exuberance." We believe the current market environment is fundamentally different from that of thirty years ago; today's exuberance is not "irrational" but "rational."
Specifically, three key factors support this view: First, we believe global economic growth is accelerating, with both the US and Europe experiencing faster growth. Second, we expect fiscal spending to continue, with a significant degree of stimulus policies being rolled out; Europe and Germany are increasing spending, and the US has enacted substantial legislation, meaning fiscal policy will continue to be supportive. Third, monetary policy is becoming more accommodative; we anticipate the Fed will cut rates twice this year.
These factors combine to create an ideal economic scenario akin to "Goldilocks": accelerating growth, accommodative monetary policy, increased fiscal spending, and sustained corporate profit growth, which is why we remain optimistic.
Of course, the "exuberant" side of the market is indeed present: current asset valuations are high, and credit spreads are extremely narrow, reflecting substantial market optimism.
Consequently, we believe the sustainability of this upward momentum hinges critically on whether economic growth meets expectations. If growth continues to accelerate, the current "exuberance" can be considered rational; otherwise, there may be adjustment risks. This is one of the most crucial assessments for this year.
A Rational Perspective on Tariffs
Looking back at last year, the transmission effect of tariffs on the economy seemed limited, and global investors have adapted to this new reality. Do global investors still need to be wary of tariffs, and how will different factors affect market volatility this year?
Investors do indeed need to remain vigilant. First, the ability of various economies and companies to adapt to the new tariff regime has been remarkable. So, tariffs are not without impact, but their effect has been less severe than many economists, including ourselves, initially anticipated.
Second, the issue you raise touches on the broader scope of geopolitical risks and the news flow they generate. Our advice here is: stay calm and assess things rationally.
Geopolitical events only substantively impact financial markets when they genuinely affect the fundamentals of the real economy or corporate profits. Tariffs are a clear example of a factor that directly impacts corporate earnings and economic growth, which is why markets react sensitively to them.
However, a multitude of other geopolitical news, if lacking an effective transmission mechanism to the real economy—meaning they do not tangibly affect corporate profits or macroeconomic performance—typically do not exert a lasting influence on market trends. So sometimes people wonder why markets continue to rise amid a barrage of negative news; the key lies in whether there is a real "transmission mechanism."
Finally, it's important to note that in the past, oil was the key factor. Historically, during geopolitical conflicts, oil prices would surge significantly, and such oil price increases could actually trigger economic recessions. This was why geopolitical news had such a substantial market impact then. Today, this transmission mechanism has become more complex. Therefore, when focusing on geopolitical news, one should always consider whether these factors will affect corporate profits or economic performance.
In its 2026 investment outlook, DWS points out that current high market valuations are actually supported by robust earnings and an AI-driven technological revolution. Which investment themes or trends, particularly in AI, will be your key focus areas this year?
We have coined a new concept: "Goldilocks AI." We use the "Goldilocks" analogy because we believe the global economy is accelerating, which is positive for risk assets. Adding "AI" reflects our view that the AI theme will persist, but the phase of easily capturing beta returns is over.
Within the AI space, we prefer to invest in companies at "bottleneck" points—those with pricing power that are critical suppliers within the ecosystem, though not necessarily the most obvious market darlings. These companies might be involved in equipment manufacturing, the semiconductor industry, or certain commodity areas.
Therefore, investors should study the entire value chain and make selective investments. I believe it has become more difficult to easily capture beta returns now.
Gold as a Portfolio "Must-Have"
Gold prices recently repeatedly hit record highs, and global central bank gold reserves have also reached a historical peak. What is your view on the trajectory of gold prices?
We believe gold is one of the few tools available in current portfolios that can effectively diversify risk. The problem is the limited availability of alternatives. Whenever tariff news or any market-jittery headlines emerge, gold tends to perform relatively well, even after its own significant rally. Therefore, I think every investment portfolio should have an allocation to gold due to its extremely low correlation with other asset classes.
We attribute the long-term strength of gold to a series of structural drivers. One of these is the issue of deficits globally; debt in developed economies has surpassed 100% of GDP, and high fiscal deficits diminish the appeal of traditional sovereign bonds, prompting investors to seek alternative assets, with gold naturally being a key option.
Furthermore, the "currency debasement trade" trend persists. Central banks are still gradually reducing their reliance on the US dollar; although the pace is moderate, this de-dollarization process provides long-term demand support for gold. Additionally, the gold market is much smaller than the global government bond market, meaning that relatively small fund inflows can have a significant impact on its price.
Of course, investors also need to anticipate volatility; we have already seen a fairly strong rally in gold, so the future path will not be a straight line upwards. But we believe that in the current macroeconomic environment, gold remains an important tool for diversifying investment risk.
Bullish on AI, Consumer, and Healthcare Sectors
China's 15th Five-Year Plan recommendations emphasize technological self-reliance and expanding domestic demand. Against this backdrop, what key factors do you believe will drive China's economic growth, and how will they impact asset pricing this year?
From a European investor's perspective, China is competitive in the technology sector. While it may not yet hold an absolute global leadership position, it is advancing rapidly in frontier areas like AI and catching up quickly through an efficient capital expenditure model. China's tech sector has shown strong performance, and we believe this trend will continue, making the tech industry a significant part of the future market.
Beyond technology, the 15th Five-Year Plan recommendations also highlight boosting consumption. We believe this will create structural opportunities in consumer-related and consumer technology fields. Additionally, investors should avoid sectors with intense competition and pressured profit margins. Specifically, areas like healthcare and the elderly care industry have the potential to become the next wave of growth in the Chinese market. Overall, we currently maintain a neutral stance on the Chinese market, not advocating a broad-based increase in allocation, but we are selectively investing in the aforementioned sub-sectors expected to benefit from policy direction and structural transformation.
What do you see as the key drivers behind these sectors?
We believe there is a substantial amount of excess savings within the Chinese economy, largely stemming from public uncertainty about the future, which suppresses potential consumer demand. As the government continues to advance the social security system, increases and stabilizes household incomes, and gradually alleviates these uncertainties, consumer confidence is expected to recover, releasing pent-up consumption potential. This will be a key factor reshaping the market landscape. Furthermore, we anticipate the negative impact of the real estate sector on economic growth will likely ease over the next one to two years.
Some argue that this year, China's tech "Big Eight" will surpass the US "Magnificent Seven" in terms of profit growth. In this context, what is your view on Chinese equities and the tech sector? Do you think the Chinese stock market will continue its strength this year?
We anticipate a "slow bull" market for Chinese equities, with the technology sector continuing to perform well. In the field of large AI models, Chinese tech companies demonstrate a strong ability to catch up, requiring significantly lower capital expenditure than their overseas counterparts, highlighting a clear efficiency advantage. This makes them a key sector we continue to monitor.
Looking back at last year, only two of the US "Magnificent Seven" outperformed the S&P 500, proving that current profit expectations for the US "Magnificent Seven" are already high.
Overall, forces supporting an upward trend in Chinese equities are accumulating: on one hand, the real estate industry is gradually improving and is no longer a drag; on the other hand, consumer spending is expected to increase as households feel more secure. Additionally, we believe there is still room for development in the services sector, which is why we are optimistic about consumer technology and certain service industries like healthcare.
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