Emerging Markets Set to Shine: Goldman Sachs Predicts Decade of Strong Equity Gains

Goldman Sachs predicts emerging markets, led by India and China, will outperform developed economies over the next decade, delivering 10.9% annual returns. Strong earnings growth, favorable demographics, and policy reforms drive this optimism. Despite high valuations, global equities are expected to deliver steady long-term gains, with diversification into emerging markets offering the best opportunities.

Emerging markets are projected to take the spotlight in the coming decade, with India leading the charge in equity market performance, according to Goldman Sachs’ newly released report “Global Strategy Paper No. 75 — Building Long-Term Returns: Our 10-Year Forecasts.” The investment bank anticipates that these markets will deliver some of the highest returns globally, backed by robust earnings momentum and solid economic fundamentals.

India and China Drive the Growth Story

Goldman Sachs forecasts that emerging markets will generate an annualized return of 10.9% in U.S. dollar terms over the next ten years, outpacing developed economies like the U.S. (6.5%), Europe (7.1%), Japan (8.2%), and Asia excluding Japan (10.3%). The bank attributes much of this superior performance to accelerating earnings per share (EPS) growth in India and China, supported by ongoing policy reforms and favorable structural trends.

For India specifically, Goldman Sachs expects a 13% compound annual growth rate (CAGR) in corporate earnings — the strongest among major markets. The report cites the country’s favorable demographics, expanding middle class, and sustained policy support as key growth drivers.

Earnings: The Cornerstone of Equity Performance

The report emphasizes that earnings expansion remains the most powerful force behind long-term equity returns. Global earnings, including share buybacks, are expected to rise by approximately 6% annually, while dividend payouts will contribute the remainder of total returns. Despite lofty valuations across several markets, Goldman Sachs believes equities are positioned for stable, long-term growth.

“Our forecast of 7.7% per annum in USD is consistent with historical medians,” the report notes, “supported by structural tailwinds such as nominal growth, profitability, and shareholder distributions.”

Valuations High, but Outlook Positive

While high asset valuations remain a challenge — particularly in the U.S. — Goldman Sachs does not view them as a major threat to the overall market outlook. Instead, the firm suggests that diversification into emerging markets could offer investors better risk-adjusted returns, given higher nominal growth rates and improving market frameworks in these regions.

“Elevated U.S. valuations argue for diversification, with a tilt towards emerging markets,” the report states, noting that such markets could modestly outperform developed ones in the decade ahead.

Steady Yet Moderate Returns for U.S. Markets

For the S&P 500 index, Goldman Sachs projects an average annual total return of roughly 6.5% over the next decade. Potential outcomes could range between 3% and 10%, depending on earnings performance and valuation shifts. Earnings are again expected to be the key factor shaping U.S. equity returns during this period.

A Decade of Opportunity

In summary, Goldman Sachs sees a strong case for sustained equity market performance across the globe, with emerging markets — particularly India — standing out as areas of exceptional opportunity. While investors should remain mindful of valuation pressures, structural growth forces and evolving market reforms may well lay the foundation for a decade of robust investment returns.