Goldman Sachs Research\u2019s foreign exchange team expects the US dollar to weaken next year, which should lift the total return for global stocks by 0.6% when measured in US dollars, according to Oppenheimer. \u201cThe timing matters: they expect the depreciation to be frontloaded (over the next 12 months), with a subsequent drift thereafter, implying that currency gains\u2014or losses\u2014may be frontloaded.\u201d<\/p>\n
Looking forward, Oppenheimer suggests that investors diversify beyond the US, with a tilt towards emerging markets. \u201cWe expect higher nominal GDP growth and structural reforms to favor emerging markets, while artificial intelligence\u2019s long-term benefits should be broad-based rather than confined to US technology stocks.\u201d<\/p>\n
Are global stock valuations too high?<\/p>\n
Global stock valuations are elevated\u2014roughly 19x forward earnings. Goldman Sachs Research expects this to fall slightly over the decade, which would require earnings to outpace stock price by around 10% cumulatively over the next ten years. This is a conservative stance given the high starting multiple for global stock valuations, Oppenheimer writes.<\/p>\n
At first glance, the implied annualized nominal return from global stocks over the next decade appears lower than Goldman Sachs Research\u2019s forecast. A classic cyclically adjusted price-earnings (CAPE) approach, which Oppenheimer describes as \u201ca useful but incomplete predictor\u201d suggests annual returns of below 5%.<\/p>\n
\u201cValuation, however, is not the whole story. While elevated multiples typically signal lower forward returns,\u202fwe argue\u202fthat today\u2019s valuations can be partly justified by structurally higher margins and improved return on equity,\u201d Oppenheimer writes.<\/p>\n
These advances reflect changes in index composition and efficiency gains, which mitigate the risk of lower returns suggested by the CAPE approach in isolation.<\/p>\n
\u201cIn other words, valuation remains a headwind, but it does not dominate the outlook.\u201d<\/p>\n
\u00a0<\/p>\n
This article is being provided for educational purposes only. The information contained in this article does not constitute a recommendation from any Goldman Sachs entity to the recipient, and Goldman Sachs is not providing any financial, economic, legal, investment, accounting, or tax advice through this article or to its recipient. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the statements or any information contained in this article and any liability therefore (including in respect of direct, indirect, or consequential loss or damage) is expressly disclaimed.<\/p>\n","protected":false},"excerpt":{"rendered":"Goldman Sachs Research\u2019s foreign exchange team expects the US dollar to weaken next year, which should lift the…\n","protected":false},"author":2,"featured_media":151380,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[138,219,220,111,139,69,98970],"class_list":{"0":"post-151379","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-business","9":"tag-economy","10":"tag-markets","11":"tag-new-zealand","12":"tag-newzealand","13":"tag-nz","14":"tag-outlooks"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/151379","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=151379"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/151379\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/151380"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=151379"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=151379"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=151379"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}