New Delhi [India], November 16 : Emerging markets such as India are poised to deliver the strongest decadal equity market performance and stand out globally for their earnings growth, according to Goldman Sachs' latest report titled "GLOBAL STRATEGY PAPER NO 75 Building Long-Term Returns: Our 10-Year Forecasts."
Goldman Sachs expects emerging markets to deliver 10.9 per cent annualised returns over the next decade, outperforming the US (6.5 per cent), Europe (7.1 per cent), Japan (8.2 per cent), and Asia ex-Japan (10.3 per cent) in USD terms.
According to the report, the growth in emerging markets is expected to be led by strong EPS (Earnings Per Share) growth in China and India.
For both India and China, the report sees improving shareholder returns as supported by policy reforms. On average, globally, they expect global equities to deliver solid long-term returns despite elevated valuations.
"Our forecast of 7.7 per cent per annum (in USD) sits close to the historical median, supported by structural drivers such as nominal growth, profitability, and shareholder distributions," the report put out this week read.
Earnings growth remains the primary engine of performance, it said.
"We expect global earnings including buybacks to compound at roughly 6 per cent annually. Dividends provide the rest of the return, while we expect valuations to ease modestly from current highs."
India is likely to post the highest growth at 13 per cent CAGR, driven by strong economic fundamentals and demographic tailwinds, it said about India's earnings growth.
On an overall basis, it noted that valuation remains a headwind, but it does not dominate the global equity market outlook. It reiterated that global equities will deliver solid long-term returns despite elevated valuations.
"Elevated US valuations argue for diversification, with a tilt towards Emerging Markets, where higher nominal growth and improving market structures modestly favour EM over DM," the report read.
For the S&P 500 index, Goldman Sachs forecast an average annual total return of 6.5 per cent during the next 10 years, with upside and downside scenarios indicating a range of 3 per cent to 10 per cent. "We expect earnings will remain the primary driver of equity returns during the next 10 years."
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