Goldman’s Building Blocks For Global Investing Over The Next 50 Years

Goldman’s Building Blocks For Global Investing Over The Next 50 Years
Russell Burns

about 1 year ago4 mins

  • Goldman Sachs predicted that China, the US, India, Indonesia, and Germany are expected to be the biggest economies in 2050.

  • Emerging markets are expected to grow at a faster pace than developed ones, and the report signaled three main themes that could come into their own over the coming years.

  • If Goldman’s projections are correct, investing in India, emerging markets, robotics, and healthcare could look like reasonable investments

Goldman Sachs predicted that China, the US, India, Indonesia, and Germany are expected to be the biggest economies in 2050.

Emerging markets are expected to grow at a faster pace than developed ones, and the report signaled three main themes that could come into their own over the coming years.

If Goldman’s projections are correct, investing in India, emerging markets, robotics, and healthcare could look like reasonable investments

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Goldman Sachs economist Jim O’Neil coined the acronym “BRIC” almost 20 years ago, which identified Brazil, Russia, India, and China as rising economic powers. And in its recent report, Goldman expanded that coverage to include 104 countries, and mapped out its projections for global growth right up till 2075. I’ve taken a hard look at the big bank’s expectations so I could save you some time: here’s how Goldman sees the world changing over the next 50 years, and where you could find the biggest up-and-coming opportunities.

Key projections:

The world’s biggest economies (measured in US dollars). Source: Goldman Sachs
The world’s biggest economies (measured in US dollars). Source: Goldman Sachs

Let’s start with country-specific picks. Goldman believes that China, the US, India, and Germany will still rank within the top five global economies in 2050. Indonesia’s expected to join that top five, knocking Japan out of it. Flash forward to 2075, and Goldman thinks Germany and Japan will slide down the rankings, making space for Nigeria to enter the top five. Demographics could well be behind Japan’s dip: its current population of 125 million is forecast to drop to just 86 million by 2075, and while slowing global population growth – the world’s population is expected to peak around 10 billion, after all – is good for environmental sustainability, an aging population like Japan’s brings its own challenges and opportunities.

While global economies have been growing at an average of over 3% for the past 20 years, Goldman believes we’re past the peak potential of global growth. Instead, the big bank expects global economies to grow an average of 2.8% each year from 2024 to 2029, and slowly drift down to below 2% between then and 2075. And interestingly, Goldman’s report predicts that emerging market growth, mainly driven by Asia, will continue to outstrip that in developed markets (the two dotted lines in the chart). On top of that, the bank doubts that the US economy and dollar will boast the same outsized outperformance we’ve seen in the last decade, and actually expects the US dollar to depreciate over the next ten years.

Emerging Market (EM) vs. Developed Market (DM) growth, Source: Goldman Sachs
Emerging Market (EM) vs. Developed Market (DM) growth, Source: Goldman Sachs

Now it’s true, you can’t count on economists and strategists to accurately predict the year ahead, let alone the next 50 years – just think of how few saw this year’s carnage coming. Still, the pros do have a few tricks up their sleeves, and taking some inspiration from them when you form your own long-term global economic outlook may help you make some successful investment choices.

What are the opportunities?

The projection that the US will cling onto its dominance will come as good news for investors in the country’s assets, acting as reassurance that trusting in the world’s most dynamic economy should still be sensible. But if you want to play some new investment-sprouting themes, I have three big ones to tell you about: India’s expected rise, aging populations, and shrinking labor forces.

Let’s start with India. Goldman expects Indian corporate profit to grow a punchy 15% next year and in 2024 – but you’ll have to pay a pretty premium for that growth. See, India is trading at a forward price-to-earnings multiple of 22, which is 30% higher than its long-term average. In fairness, though, the Indian stock market has done really well over the last two years. So if you agree with Goldman that there could be more to come, the iShares MSCI India ETF (ticker: INDA US; expense ratio: 0.65%) could be a good place to start. Or if you want to take advantage of the expected outsized growth from emerging markets in general, you could consider the iShares MSCI Emerging Market ETF (EMM US; expense ratio 0.68%).

There’s a reason I emphasized shrinking labor forces around the world. That increases the demand for automation, as companies know they need to find a solution to cope with labor shortages while improving their operations and upping profit. The Robo Global Robotics and Automation Index ETF (ROBO US, expense 0.95%) is a great way to play this investment theme. Admittedly, the costs of the fund are a little higher than some other exchange-traded funds (ETFs), but it’ll let you dip a toe into the global robotics and automation industry. There’s also the L&G Robo Global Robotics and Automation UCITS ETF (ticker ROBO LN; expense ratio 0.8% ) which has very similar holdings.

And finally, an aging population should set the scene for lasting strong demand for healthcare, pharmaceuticals, and medical devices. The Health Care Select Sector SPDR Fund (ticker XLV US; expense ratio 0.1%) includes companies involved in healthcare equipment and supplies, healthcare providers and services, biotechnology, and pharmaceuticals. And good news: it’s likely to continue to provide stable returns over the short term and the next 20 years.

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