DBS Investment Outlook Warns of Overconcentration in US Stocks! Recommends Diversified Defensive Hedging; Gold Forecast to Reach $5,300 This Year

As the pace of global economic transformation accelerates, AI-driven opportunities and energy security have emerged as dual engines powering financial markets. Chen Yu-Jia, Senior Vice President of Wealth Management Investment Advisory at DBS Bank (Taiwan), shared third-quarter asset allocation recommendations on the 21st and issued a strong warning about current global financial markets. He emphasized that investors must recognize the risks of overconcentration in US equities and advised shifting focus toward defensive sectors and tangible hedge assets.

Chen highlighted that capital expenditure driven by AI is entering an explosive growth phase. However, the traditional risk-diversification effect of a '60% stocks, 40% bonds' portfolio is weakening. Investors should incorporate alternative assets such as gold and commodities into their portfolios. DBS forecasts gold prices could reach $5,300 in the fourth quarter of 2025.

Chen pointed out that the global economy is transitioning from the past 20 years of an 'era of abundance' into a 'scarcity era'—a new paradigm shaped by fiscal policy dominance, geopolitical instability, and persistent inflation. The diversification benefits of the traditional '60/40' portfolio have significantly diminished. Instead, a new diversified portfolio should include commodities, gold, and Chinese A-shares.

Citing NVIDIA CEO Jensen Huang's 'five-layer cake' theory, Chen reiterated DBS's positive outlook on technology stocks, particularly semiconductor manufacturing and design, networking equipment, and specialized hardware benefiting from AI capital spending. Beyond the market's focus on GPUs, CPU demand is rebounding strongly due to the proliferation of AI applications. DBS projects CPU output value to grow more than fivefold by 2025.

Additionally, server performance improvements are driving a surge in 'cooling demand' and shipments of high-end 'passive components (MLCCs)', both of which are expected to enter a steep growth phase over the next two years.

Notably, AI development is fueling unprecedented electricity demand. Chen cited that AI-powered search consumes 10 to 100 times more power than traditional search. As energy security re-emerges as a critical issue, renewable energy, energy storage, grid modernization, and even nuclear power are expected to become key profit drivers.

Chen emphasized that nuclear power, with its reliability and relative safety, is regaining attention. Moreover, amid shipping disruptions in the Strait of Hormuz and sustained high oil prices, energy sector equities are also poised to benefit.

Regionally, Chen believes Asia's exports are relatively resilient to energy price shocks due to strong demand for AI-driven electronics. Taiwan and South Korea, as hubs in the global AI supply chain, exhibit the clearest momentum in export and GDP growth. Meanwhile, Japanese equities benefit from rising wages and robust semiconductor exports, maintaining support despite Middle East tensions.

Chen warned that the S&P 500 faces overconcentration risk, with high volatility typically following sharp rallies. He recommended a balanced allocation between momentum and defensive stocks. For asset allocation, DBS suggests maintaining a 50% equity, 35% bond, and 15% alternative investment portfolio.

Given rising correlations between stocks and bonds, DBS strongly recommends allocating to gold. Beyond de-dollarization and currency depreciation risks, sustained central bank gold buying supports gold's long-term outlook. DBS forecasts a gold target price of $5,000 in Q3 2025 and $5,300 in Q4 2025.

For bond allocations, investors should be cautious with ultra-long-duration bonds. DBS recommends holding investment-grade bonds rated A/BBB and maintaining a strategic duration of 5 to 7 years to control price downside risk while securing stable coupon income.