As we approach the mid-point of the “Roaring 20s”, marked by high economic growth, strong market returns and improving productivity, UBS highlights key investment strategies and opportunities in its Year Ahead 2025 report.
With regards to economic outlook, UBS’s base case is sustained economic growth in the US, supported by healthy consumption, loose fiscal policy and lower interest rates. UBS expects US economic growth to slow but remain close to 2%.
The potential implementation of tariffs remains a headwind for Asia and Europe, but if imposed, could be partially offset by the stimulus measures in China.
Within Asia, UBS forecasts slightly slower growth in 2025, with regional variations.
In China, UBS anticipates that the Trump administration will implement additional tariffs on US imports from China, increasing the effective rate from about 10% to 30% by end-2026. In a risk scenario, a 60% blanket tariff could make much of US-China trade “unviable”.
However, China’s RMB10 trillion ($1.86 trillion) local government debt resolution plan should reduce the risk and it appears that Beijing is ready to boost economic stimulus should the need arise.
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As such, UBS expects China’s growth to move from 4.8% in 2024 to 4% in 2025.
On the other hand, the US-China tensions could lead to enhanced investments in other parts of Asia, boosting infrastructure and construction activity.
UBS notes that India and Indonesia are poised to experience stronger growth given favourable demographics and lower risk of tariffs.
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UBS anticipates Japan’s growth to accelerate to 1.1% in 2025, from a 0.2% decline in 2024, driven by higher wages and consumption, alongside an expected Bank of Japan rate hike by mid-2025.
Central bank rate cuts
As 2025 advances, UBS expects a further 125 basis points (bps) cut from the Fed, 50 bps from the Swiss National Bank, 125 bps from the European Central Bank and 100 bps from the Bank of England.
In its base case, UBS does not expect new US policies to have a significant upward impact on inflation and believe the Fed would likely look past one-off price rises related to tariffs.
Furthermore, rates could fall faster than in UBS’s base case should there be a consumer-led slowdown in economic activity.
Trump 2.0 market implications
UBS expects the S&P 500 to reach 6,600 by the end of 2025 driven by benign growth, lower interest rate, artificial intelligence (AI) demand alongside potential tax cuts and deregulations under a Trump administration.
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“We expect around 11% S&P 500 earnings per share (EPS) growth in 2024 and 8% in 2025,” UBS adds.
UBS has identified technology, utilities and financials as preferred sectors.
US Treasury yields rose in anticipation of a Trump presidency.
“But with the Fed likely to stay on a rate cutting path, and with plans to loosen fiscal policy facing potential Congressional constraints, we think yields are likely to fall in the year ahead,” UBS notes.
As such, investors should use currently elevated yield levels to lock in returns.
While the US Dollar Index has strengthened following the US election outcome, UBS believes that the dollar is currently “overvalued and overstretched”.
As such, UBS advises investors to use periods of further dollar strength to decrease exposure through hedging, shifting USD cash and fixed income to other currencies, and using options.
In 2025, UBS notes that gold remains an effective hedge against key political concerns including government debt levels, inflation and geopolitical tensions.
UBS maintains its target of USD2,900 ($3,902) per ounce by end 2025 and continues to recommend a 5% allocation to gold as a diversifier.
What should investors do?
UBS expects central banks to cut interest rates further in the year ahead, reducing cash returns.
As such, UBS states that investment grade (IG) bonds offer attractive yields and expect mid-single digit returns in USD, EUR and GBP.
“Investment grade bonds are also appealing from a risk management perspective. While a tariff shock is a potential risk, IG bonds should perform strongly in a hard landing scenario,” UBS says.
Additionally, diversified fixed income strategies and equity income strategies enable investors to sustain portfolio income.
With regards to equity income strategies, UBS estimates that mixing high dividend, dividend growth and option strategies could deliver a total yield of 5% to 7% per year.
Beyond US equities, UBS has identified Asia ex-Japan as an attractive option, expecting the MSCI Asia ex-Japan index to return about 15% by the end of 2025.
While tariffs are a likely headwind for China, AI spending, high GDP growth and declining US and regional interest rates should be supportive for other markets in the region.
Taiwan has been identified as an attractive market as key semiconductor exports are not readily substitutable and UBS expects AI demand to remain robust.
India is another attractive market as high structural rates of GDP are supported by favourable demographics in a domestically oriented market. UBS expects 12% EPS growth in FY2025 and 14% in FY2026.
Within China, UBS expects defensive and high-yielding value sectors to outperform financials, utilities, energy and telecommunication (telecom).
Among exchange-traded base metals, UBS has identified copper as its “high-conviction pick”.
"We see copper prices reaching a near record USD11,000 per metric ton by end-2025,” UBS adds, noting other opportunities in niche minerals such as manganese, rare earths and lithium.
Additionally, UBS is of the opinion that the outlook for global residential and commercial real estate investments is bright, with opportunities in logistics, data centres (DC) and multi-family housing.
