Goldman Sachs’ latest long-term forecast report for 2035 points out that despite cyclical forces continuing to disrupt the market, the widespread adoption of artificial intelligence and the rise of emerging markets will become defining trends of the next decade. The bank predicts that emerging markets will achieve an annualized return rate of 10.9%, significantly surpassing the 6.5% projected for the United States.
Goldman Sachs Group notes that artificial intelligence and emerging markets are set to define the next decade. This investment bank’s ‘Global Outlook for the Next Decade,’ released last Wednesday, systematically outlines its market expectations through 2035. This forward-looking report aims to complement the forecasts of its economists.
“Although cyclical forces may influence markets at various stages, we expect the dominant drivers during this period to be structural: trend nominal growth, profitability and margin performance, initial valuations, and the policy environment,” emphasized Goldman Sachs analysts in the report. They employed a common framework to evaluate each region while adjusting for local conditions. Their model estimates total returns as the sum of earnings growth, valuation changes, and dividend yields, tailoring assumptions to account for different market drivers and index compositions.
Artificial intelligence has emerged as the defining trend of the year, while emerging markets have drawn significant attention amid supply chain volatility, tariffs, and currency fluctuations, prompting investors to pivot towards diversified portfolios. Goldman Sachs analysts anticipate these trends will persist. “Historically, a weakening U.S. dollar often correlates with outperformance in non-U.S. markets, creating additional opportunities for global diversified portfolios,” they added.
Below is a detailed interpretation of the key highlights from the report:
Despite concerns about an AI bubble, the long-term outlook for equities remains robust
Goldman Sachs analysts express optimism about the current trajectory of global equities, even amidst widespread discussions about an AI bubble. “We expect global equities to deliver solid long-term returns, despite elevated valuations,” they wrote in the report. The investment bank forecasts an annualized global equity growth rate of 7.7%, which analysts note is “close to the historical median.”
They stated that although starting valuations are around 19 times forward earnings, “we assume they will decline slightly over the course of this decade.” The report attributes market resilience to nominal growth, profitability, and shareholder distributions.
A typical characteristic of bubbles is the disconnection between valuations and fundamentals, a dynamic many fund managers and analysts believe is manifesting in AI-related stocks. On the other hand, a strong earnings season has alleviated some concerns and driven further gains in tech stocks.
“Earnings growth remains the primary driver. We project a compound annual growth rate of approximately 6% for global earnings (including stock buybacks). Dividends contribute the remainder of returns, while we expect valuations to moderate modestly from current elevated levels,” added Goldman Sachs analysts.
Emerging markets are expected to outperform the United States.
Emerging markets are projected to continue attracting attention over the next decade, and as their performance surpasses other regions, including the United States, this segment will become a key driver of returns.
The investment bank forecasts that emerging markets will achieve an annualized return of 10.9%, driven by robust earnings-per-share (EPS) growth in China and India. The Asia ex-Japan region follows closely, with expected growth of 10.3% supported by EPS and dividend yields. Analysts added that the Nikkei 225 index has risen 27.4% year-to-date, with Japan’s projected return at 8.2%.
In other regions, profitability and shareholder returns are expected to drive European growth by 7.1%. The United States is anticipated to see the smallest increase at 6.5%, which Goldman Sachs analysts describe as being “entirely driven by earnings and modest dividends.”
“We recommend diversifying allocations outside the U.S., with a tilt toward emerging markets. We expect higher nominal GDP growth and structural reforms to benefit emerging markets, while the long-term benefits of AI should be widespread, rather than confined to the U.S. tech sector,” they added.
Investor sentiment on AI’s impact on emerging markets remains divided, but Goldman Sachs analysts anticipate its benefits will be broadly distributed — McKinsey estimates the ultimate value of AI could reach $4.4 trillion. The report notes that countries like South Korea, Japan, and China are making significant investments in AI-driven capital expenditures and applications, though there remain ‘notable differences’ across regions.
India may achieve the highest growth, with strong economic fundamentals and demographic dividends driving its compound annual growth rate (CAGR) to 13%. Goldman Sachs analysts wrote that South Korea (with a 10% CAGR in earnings per share) “could see profit growth propelled by AI-related capital spending, shareholder reforms, and strategic sectors such as defense, nuclear energy, and shipbuilding.”
They stated: “China has the potential to achieve 12% growth over the next three years, driven by AI-related capital spending/applications, increased external market share (globalization theme), and anti-involution measures (reducing excess capacity and associated margin pressures).”
Editor/jayden
