Artificial intelligence and emerging markets are set to define the next decade, according to Goldman Sachs. The Goldman Sachs 10-year global outlook, released on Wednesday, sets out the investment bank’s expectations leading up to 2035. The longer-look report is designed to complement forecasts from the firm’s economists. “While cyclical forces will periodically influence markets, the drivers that we expect to dominate over this horizon are structural: trend nominal growth, profitability and margin behavior, starting valuations and the policy backdrop,” Goldman Sachs analysts noted. They used a common framework across assessed regions, adapting it based on local specifics. The model estimated total returns as the sum of earnings growth, valuation changes and dividend yield, using assumptions tailored to each market’s drivers and index makeup. AI has been the defining trend of the year, and emerging markets have been hot amid volatility in supply chains, tariffs, and currency, leading investors to diversify their portfolios. Goldman Sachs analysts expect those trends to continue. “Historically, dollar weakness has coincided with non-US outperformance, adding an extra layer of opportunity for globally diversified portfolios,” they added. Here’s a look at the report’s key points in more detail: Equities look robust in the long-term, despite AI bubble fears Analysts at Goldman Sachs are comfortable with the current track of global equities, despite the are-we-aren’t-we chatter surrounding an AI bubble . “We expect global equities to deliver solid long-term returns despite elevated valuations,” they wrote. The investment bank forecasts global equities to grow 7.7% per annum, which “sits close to the historical median,” the analysts noted. While valuations start at around 19-times forward earnings, they said, “we assume they will be slightly lower over the decade.” Buoyancy is supported by nominal growth, profitability, and shareholder distributions, per the note. A bubble is typically defined by a disconnection between valuations and fundamentals, a dynamic many fund managers and analysts believe is emerging within AI-related stocks. On the flip side, a strong earnings season has quelled some concerns and caused a further rally on tech stocks . “Earnings growth remains the primary engine of performance. We expect global earnings — including buybacks — to compound at roughly 6% annually. Dividends provide the rest of the return, while we expect valuations to ease modestly from current highs,” the Goldman Sachs analysts added. Emerging markets to outperform the U.S. Emerging markets are expected to hold attention over the next decade, cementing the sector as a key driver of returns as they outperform other regions including the U.S. The investment bank predicts emerging markets will advance 10.9% due to strong earnings per share growth in China and India. Excluding Japan, Asia tails closely, with an expected 10.3% rise due to earnings per share and dividend yield. Japan, whose Nikkei 225 index is up 27.4 year-to-date, will see expected returns of 8.2%, the analysts added. Elsewhere, earnings and shareholder returns could boost Europe 7.1%. The U.S. will see the smallest expected gains of 6.5%, which Goldman Sachs analysts said is driven “entirely by earnings and modest dividends.” “Diversify beyond the US, with a tilt towards Emerging Markets. We expect higher nominal GDP growth and structural reforms to favour EM, while AI’s long-term benefits should be broad-based rather than confined to US Technology,” they added. Benefits of AI to surpass Silicon Valley Investors are split on AI’s impact on emerging markets but Goldman Sachs analysts expect its benefits — which McKinsey says will eventually be worth $4.4 trillion — to be widespread. Korea, Taiwan, Japan, and China are investing heavily in AI-driven capex and adoption, however, there are “significant differences” between each country, the note said. India is likely to see the most growth, at 13% compound annual growth rate (CAGR) driven by strong economic fundamentals and demographic tailwinds. Taiwan and Korea, both 10% earnings per share CAGR, “will likely see earnings growth bolstered by AI capex, shareholder reform (mainly Korea), and strategic sectors including defence, nuclear, and shipbuilding (Korea),” Goldman Sachs analysts wrote. “China has the capacity to deliver 12% growth over the next three years, driven by AI capex/adoption, rising external market share (the going-global theme), and anti-involution (reduction of excess capacity and corresponding margin pressure),” they said.
