Goldman Sachs unveils its 10-year playbook — and AI is at the heart of it

Goldman Sachs' 10-year global outlook identifies Artificial Intelligence and Emerging Markets as the primary drivers of investment returns through 2035. The firm projects global equities to deliver solid long-term returns of 7.7% annually, underpinned by earnings growth and dividends, despite elevated valuations. Emerging Markets are expected to significantly outperform, with a projected 10.9% advance driven by strong EPS growth in China and India, contrasting with the U.S.'s anticipated 6.5% gains, leading Goldman Sachs to recommend diversifying portfolios towards EM given AI's broad-based benefits beyond U.S. tech.

Analysis

Goldman Sachs' 10-year global outlook identifies Artificial Intelligence and Emerging Markets as the primary structural drivers for investment returns through 2035, reflecting a 'strongly positive' sentiment. The firm projects global equities to deliver solid long-term returns of 7.7% per annum, underpinned by an expected 6% annual earnings growth (including buybacks) and dividends, despite current elevated valuations around 19-times forward earnings which are anticipated to ease modestly over the decade.

Emerging Markets are forecast to significantly outperform, with a projected 10.9% advance, driven by robust earnings per share growth in China and India. This contrasts with the U.S., which is expected to yield the smallest gains at 6.5%, primarily from earnings and modest dividends. Goldman Sachs explicitly recommends diversifying beyond the U.S. towards EM, citing higher nominal GDP growth and structural reforms.

AI's benefits are expected to be broad-based, extending beyond Silicon Valley, with key EM economies investing heavily. India is projected for 13% compound annual growth rate (CAGR), China for 12% growth over three years, and Taiwan and Korea for 10% EPS CAGR, fueled by AI capex, economic fundamentals, and strategic sector reforms.

Key Decisions for Investors

• Consider increasing exposure to Emerging Markets, particularly those with strong AI investment and demographic tailwinds like India, China, Taiwan, and Korea, as they are projected to significantly outperform the U.S.
• Diversify portfolios beyond U.S. equities to capitalize on higher nominal GDP growth and structural reforms anticipated in EM, aligning with Goldman Sachs' recommendation for global diversification.
• Monitor global equity valuations and earnings growth, as Goldman Sachs expects current elevated valuations to ease modestly while earnings remain the primary engine of performance.