German asset manager DWS has published its fourth edition of its CIO Special, which sets out 10 key themes for the year ahead. From Washington to Berlin, and from AI data centres to the new space economy, DWS outlines the forces likely to shape returns over the next 12 months.

This week, DWS chief investment officer (CIO) Vincenzo Vedda (pictured), highlighted 10 themes that might matter most in 2027, ranging from US politics, real estate and yields, to water, emerging markets and Germany's pension reform.

“This is not about exotic risk scenarios, but about what we believe will be the most important drivers over the medium term. It should come as little surprise that geopolitics, artificial intelligence and monetary policy are among them,” Vedda said.

The 10 top themes are outlined below.

Europe and America
Breaking up is hard to do once the costs of going it alone become clear. “America First” might ultimately remind Americans why they built strong alliances in the first place. Already, cooperation in defence, supply chains, energy, technology and critical infrastructure appear to be deepening. The result may be renewal, rather than an end to the transatlantic era. US President Donald Trump may have set out to put America First, but one of his unintended legacies may be to remind America why it chose to seek allies in the first place.

Emerging markets: Still the engines of global growth
Emerging and developing economies account for 61 per cent of global gross domestic product (GDP) on a purchasing-power parity basis. The International Monetary Fund (IMF) expects them to grow by 3.8 per cent in 2026, compared with 1.7 per cent for advanced economies. As many developed economies face ageing populations, slower productivity growth and rising debt, emerging economies are gaining importance in growth, trade and investment. Rather than a simple transfer of power, the world appears to be moving towards a more multipolar landscape, with several regions shaping demand, production and capital flows. 

Much of future global growth is likely to originate outside traditional industrialised economies. Younger populations, rising incomes, urbanisation and infrastructure investment are driving growth across the developing world. India is among the fastest-growing major economies, while Southeast Asia benefits from supply-chain diversification as companies seek additional manufacturing hubs. AI and automation add another dimension. China has scale in AI, patents and advanced manufacturing, Taiwan remains critical to advanced-chip production and Singapore has strong AI infrastructure and public-sector adoption. India benefits from a large technology workforce and digital scale.

The importance of emerging markets extends beyond economic growth. Many of them possess the resources and industrial capabilities needed for digitalisation, electrification and renewable energy. They supply a large share of the world’s critical minerals, while China leads in industries ranging from solar modules to batteries and other technologies essential to the low-carbon transition. Much of future energy demand growth is also likely to originate in emerging markets. Without their participation, neither resilient supply chains nor global climate objectives are likely to be achieved.

The same need for selectivity applies in credit. India’s renewable-energy sector, for example, benefits from government targets and substantial equity investment, supporting long-term credit fundamentals, although tight spreads currently favour carry over valuation upside. Country and sector selection therefore matter more than headline GDP growth: opportunities can differ substantially both between economies and within them.

Their growing global importance may increase their relevance for investors, but does not warrant indiscriminate exposure. Long-term outcomes are likely to depend on selecting countries where reform and competitiveness translate growth into stronger companies and capital markets.

A number of firms such as Paris-based asset manager Carmignac, Comgest, Indosuez Wealth Management and BNP Paribas Wealth Management also remain upbeat on undervalued tech-driven emerging markets. See commentary here and here.

Fed policy: The end of cheap money
For years, interest rates were low and liquidity abundant. Renewed inflation pressures, however, could now usher in a period of higher capital costs and a new yield environment. Budget deficits remain elevated, government debt continues to rise, and the financing needs of the public sector are becoming increasingly important. The key question today is no longer whether the US Federal Reserve will raise rates one more time. More important is where yields ultimately settle over the longer term.

Several factors could keep yields above the exceptionally low levels of the previous decade. The US economy remains resilient, while new technologies, geopolitical shifts and expansionary fiscal policy are increasing demand for capital.

Higher yields need not necessarily be a problem. The key question is whether productivity, economic growth and corporate earnings can keep pace with rising borrowing costs. If not, tighter financial conditions and valuation pressure could increasingly become a headwind. The impact is also likely to vary across asset classes.

“It is not the level of yields alone that determine whether higher rates become a problem, but rather what is driving them,” George Catrambone, head of fixed income Americas at DWS, said. “If yields rise because of stronger growth and solid fundamentals, investors can adapt. If, however, they are driven by larger deficits, inflation and higher term premium, the pressure on consumers, businesses and valuations increases significantly.” This could mark the transition from a liquidity-driven market environment to one driven more by fundamentals. Corporate quality, capital discipline and careful duration selection may once again move to the forefront of investment decisions.

The Fed’s next phase is likely to be shaped primarily by inflation, while fiscal stimulus, deficits and Treasury issuance may exert separate pressure on longer-term yields. For fixed-income investors, greater dispersion may create attractive opportunities for selective positioning.

Can pension reform change how Germans invest?
Germany’s pension system could be on the verge of significant change. A new retirement savings account, the “Altersvorsorgedepot,” has already been approved. A second, more far-reaching reform remains under discussion and would add a funded component to the statutory system. Could Germany make the transition from a nation of savers to a nation of investors?

German households hold the bulk of their savings in bank deposits and other conservative investment products. Equities, by contrast, are still playing a relatively limited role. Meanwhile Germany’s pension system relies heavily on pay-as-you-go financing, while funded elements remain comparatively small by international standards.

Reform of private retirement savings has already been approved. Beginning in 2027, the government-supported Altersvorsorgedepot will expand the range of retirement products available to savers. For the first time, investments without a mandatory capital guarantee will be permitted, broadening the investment scope to include more return-oriented assets such as exchange- traded funds (ETFs) and mutual funds.

The proposed reform’s immediate effect on pension benefits may be limited. Over time, however, it could strengthen Germany’s capital markets and help households build retirement wealth. “More money will flow into capital markets, but the more important question is how that money will be invested,” said Rene Penzler, head of Investment Solutions at DWS. While German retirement products have traditionally emphasised guarantees and capital preservation, the reforms could give long-term, return-oriented investment a greater role.

The reform could improve companies’ access to equity capital, facilitate the financing of businesses and give households a greater opportunity to participate in global market returns. The Altersvorsorgedepot is an important first step, but the firm thinks a broader shift requires a funded component in the statutory pension system as well.

New Europe can hold its own
Investors who are positive on the AI boom could be concerned about its concentration in equity indexes, particularly in the US. Despite offering exposure to a broad range of sectors, the S&P 500 remains heavily tilted towards a relatively small group of technology and AI-related companies. Its 10 largest constituents account for nearly 40 per cent of the index. By comparison, Europe's market leadership is distributed across a broader mix of sectors and business models. This could be interesting for international investors looking for diversification.

“Europe has no reason to hide,” said Benjardin Gärtner, head of Equities at DWS. “Over the past four years, the Stoxx Europe 600 has kept pace with the S&P 500, thanks in part to the index’s changing sector composition. I also like the fact that companies are becoming more confident when it comes to share buybacks.” We expect average earnings growth to return to double-digit levels in 2026 and 2027, marking a strong rebound after three years of stagnation.

From AI adoption to investment returns
AI is moving from being mainly a chatbot answering questions to being an agent carrying out tasks, which may plan a sequence of actions, use tools and check its own work. DWS believes that, with agentic AI, the AI deployment cycle is shifting from pure infrastructure buildout towards the application layer. Tech leadership could therefore broaden beyond semicondutors and computing infrastructure towards cloud, software and cybersecurity.

As agents gain access to company data and the ability to act, safeguards, orchestration and governance become more important, which in turn could support yet more investment in AI and computing capacity.

In short: AI demand continues to surge. But companies supplying the buildout and those earning durable returns from AI may not be the same. “While we remain constructive on the scale and duration of this shift, lasting leadership will depend not simply on who serves the next wave of AI demand, but on who can turn it into trusted products, durable revenues and attractive cash returns,” Benjardin Gaertner, global head of Equity at DWS, said. Assessing which companies are fundamentally positioned for lasting success is only the first step. Investors may also want to consider valuation and timing. After all, even as chipmakers could be entering their most profitable years yet, by October 2026, semiconductor-heavy indices have fallen by more than 20 per cent from their June peaks.

Building resilient portfolios in an AI world
DWS remains constructive on AI as a long-term investment theme. Indeed, one of the greatest risks may be underestimating the scale or duration of the potential productivity transformation. The most effective AI hedge could therefore not be a position against the technology, but a diversified portfolio that retains exposure to its upside while remaining resilient should the identified risks materialise. “In the AI era, true diversification should be measured less by the number of holdings than by the diversity of the economic engines driving portfolio returns,” Henning Potstada, global head of Multi Asset at DWS, said.

US real estate in transition
The key takeaway is not that demographics and AI will pull the economy in opposite directions. Rather, they are changing where growth comes from and how it is generated. For real-estate markets, that shift matters. Based on current trends, industrial properties, service-oriented retail assets and higher-quality residential real estate appear relatively well positioned, while conventional office buildings outside the prime segment may face greater structural challenges.

Transformation shifts where water matters most
Across the world, a growing number of countries are discovering that reliable access to water can no longer be taken for granted. Shipping disruptions in Panama, groundwater depletion in India, pressure on the Colorado river in the US and recurring droughts across Europe all point to the same conclusion: water is emerging as a constraint on trade, food security, industrial production and growth. Yet water remains one of the most underappreciated resource challenges facing investors.

For investors, the implication is that water is increasingly likely to be repriced. “Unlike energy, water has historically been underpriced, rarely traded and chronically underinvested,” said Michael Lewis, head of Research ESG. As scarcity becomes more visible, the economic value of secure water access is likely to increase, creating two distinct opportunity sets. The first lies in risk identification. Companies operating in water-intensive sectors such as utilities, chemicals and food production could face rising input costs and tighter regulatory requirements. Water intensity is therefore emerging as an important lens through which to assess business resilience, revealing vulnerabilities that traditional carbon-focused analysis may have overlooked.

The second lies in solutions. Addressing water scarcity requires substantial investment in treatment and recycling technologies, leakage reduction, desalination, precision irrigation, monitoring systems and water-related infrastructure.

As physical climate risks intensify, investment in water quality, efficiency, recycling and infrastructure is likely to grow. Such solutions can strengthen economic resilience while supporting rivers, coastal ecosystems and the broader blue economy. In a warming world, water may prove as important to economic security as energy.

Space: The next infrastructure layer
Falling launch costs, reusable rockets and increasingly capable satellites are opening up new economic opportunities. Space is gradually evolving from a niche for scientific exploration into an infrastructure platform on which entire industries could increasingly depend.

For investors, this creates a much broader opportunity set than simply rocket manufacturers. Potential beneficiaries include satellite operators, communications providers, Earth-observation and data- analytics companies, defence contractors, semiconductor manufacturers and specialised infrastructure and energy-technology firms. Business models built around recurring revenues from connectivity, data and services may prove particularly attractive. Still, investors may want to remain selective.

Not every technological vision translates into a successful business model, and high levels of investment do not guarantee sustainable profits. Commercial viability depends on reliable, reusable rockets and timely launches, which may require resolving technical challenges, securing substantial funding and obtaining regulatory approvals.

By 2050, space could play a role similar to the internet today, as an invisible layer of infrastructure supporting large parts of the economy. Communication, navigation, data processing and Earth observation could become routine services delivered from orbit.