• Global equities are forecast to return 7.7% annually over the next decade, driven primarily by earnings growth.
  • Regional disparities are significant, with Emerging Markets and Asia ex-Japan expected to outperform the U.S. and Europe.
  • The bank recommends diversification beyond U.S. equities, noting that a weaker dollar could further enhance non-U.S. returns.

Goldman Sachs has laid out a decade-long roadmap for equity investors, projecting that global stocks will deliver average annual returns of 7.7% in USD terms. According to the firm's analysis, this performance will be fueled mainly by earnings growth, estimated at roughly 6% per year, with dividends providing a modest tailwind as elevated valuations gradually ease.

The forecast reveals a stark divergence in expected regional performance. While U.S. equities are projected to return 6.5% annually, and Europe 7.1%, the real upside appears to lie elsewhere. Japan is expected to deliver 8.2%, supported by corporate reform momentum. More notably, Asia ex-Japan is forecast for 10.3% returns, and Emerging Markets lead the pack at 10.9%, with growth heavily concentrated in China and India.

"The starting point of valuations is critical," said a strategist familiar with the analysis, who noted that U.S. equity valuations are near 20-year peaks. This high watermark is a primary factor capping the long-term return outlook for U.S. markets compared to other regions.

In light of these projections, Goldman's strategy team is advising clients to look beyond domestic holdings. The bank explicitly recommends diversifying outside the U.S., with a particular emphasis on Emerging Markets. The analysis also suggests that a depreciating U.S. dollar, a possibility in many of the firm's macroeconomic scenarios, could provide an additional boost to returns for dollar-based investors holding international equities.

Efforts to reach a Goldman Sachs representative for further comment on the timing of these allocations were not immediately successful. The forecast arrives as markets grapple with concentrated gains in a handful of U.S. tech giants, making the case for geographic diversification more compelling for portfolio managers seeking more balanced growth.