Global equity outlook: Goldman Sachs projects 7.7% decade returns; earnings, payouts fuel forecast

Global equities are expected to generate strong long-term gains even though market valuations remain high, with Goldman Sachs forecasting an annualised return of 7.7 per cent in US Dollar terms over the next decade. The projection comes from the investment bank’s latest Global Strategy Paper titled Building Long-Term Returns: Our 10-Year Forecasts.According to news agency ANI, Goldman Sachs said its estimate is close to the historical median and is supported by structural factors such as nominal growth, profitability and shareholder payouts. The bank noted, “We expect global equities to deliver a 10-year total return of 7.7 per cent in USD,” despite pricey starting valuations.The firm’s building-block model derives long-term returns from earnings growth, dividend yield and valuation changes. Earnings remain the key driver, with Goldman Sachs expecting global earnings — including buybacks — to grow at roughly 6 per cent annually, ANI reported. Dividends are likely to contribute about 2 per cent, while valuations may slightly weigh on returns over the decade.Goldman Sachs acknowledged that current market valuations, at around 19 times forward earnings, are elevated but said “valuation, however, is not the whole story” and pointed to higher margins and improved return on equity as support for these levels.Regional returns over the next 10 years are expected to vary significantly. Emerging Markets are projected to deliver the highest returns at 10.9 per cent, driven by strong earnings growth in China and India. Asia ex-Japan may generate 10.3 per cent, supported by 9 per cent earnings growth and a 2.7 per cent dividend yield. Japan is forecast to give 8.2 per cent, helped by reforms and 6 per cent EPS growth. Europe may return 7.1 per cent, with about half coming from dividends and buybacks, as per ANI. The United States is expected to lag at 6.5 per cent due to expensive valuations and modest dividend payouts.While the report does not directly model the impact of artificial intelligence, Goldman Sachs said AI could offer further upside, with benefits likely to be broad-based rather than limited to US technology companies.The bank added that its baseline does not factor in “extreme shocks or blue-sky optimism”, though alternative scenarios range from 3.6 per cent to 10.5 per cent annualised returns. Despite uncertainties, Goldman Sachs said investors can anticipate favourable long-term outcomes: “We expect global equities to deliver solid long-term returns despite elevated valuations.”