The previous course of the year was rich in surprises, not just negative. Unpredictability dominates, although a hyperactive US president is probably the largest source of surprises. However, we believe that the markets can handle it better. Or maybe it is better to say that the markets and the new US government can better deal with each other. At least so far, Donald Trump has tended to withdraw initiatives that were particularly worrying for the capital markets – at least as soon as the pain became too severe. Therefore, we expect some, but no catastrophic damage caused by higher tariffs and other political uncertainties.
“In the course of next year, US politics will strongly influence the markets, whereby we believe that global trade will change due to increased tariffs and that US growth will initially dampen. Even if the greatest uncertainty in terms of tariffs should be over, trade-related headlines will probably continue to have an impact on the markets,” explains Vincenzo Vedda, Chief Investment Officer at DWS. In other regions, the economic prospects have brightened up, especially in Europe, where Germany pursues a more expansive fiscal policy. As our chart of the week shows, in our opinion, despite the ubiquitous risk of temporary setbacks, this should be reflected in relatively positive prospects for long -term profits worldwide and support the global stock markets.
For fixed-income securities, we assume that the “DEDollarization” will only progress very slowly and that the US Federal Reserve would intervene should the returns of 10 years and 30 years of US state bonds increase significantly more than five percent. In this case, we would expect that short and medium-term government bonds and investment grade company bonds in other countries will also benefit from implicit support, while one compared to the euro, the Yen and some other Asian currencies would increase the expected investment of global assets for US investors. Strong fundamental data and technical market factors should also work for corporate bonds-overall, we prefer European company towards US company bonds and investment grade bonds compared to high-interest bonds.
Of course, all of this requires relatively favorable conditions in terms of global security and trade architecture. In this context, we would like to highlight three points. First of all, in our view, gold remains attractive, not only because we see further upward potential, but also because it diversified the portfolios2 and potentially as hedge against some geopolitical and economic risks. Secondly, the expectations of Trump appear not only in terms of trade, but also in terms of taxes and deregulation, so that there is room for positive surprises. Third, signs of conscious isolationism have already led to long -term political blockages in other countries – the German debt brake is only the most obvious example. Overall, we therefore state that a globally diversified investment strategy about regions, asset classes and styles is still essential in order to be able to benefit potentially from market fluctuations and at the same time be prepared for volatility.