Goldman Sachs, Morgan Stanley Issue Rare Joint Warning on Stocks

• Global equities face a likely 10 – 20% drawdown in the next 12 – 24 months, as cautioned by Goldman Sachs (GS) and Morgan Stanley (MS) CEOs, viewing such pullbacks as normal in bull markets without altering long-term allocation strategies.
• U.S. indexes, Japan’s Nikkei 225, South Korea’s Kospi, and China’s Shanghai Composite have hit record highs this year, fueled by AI gains, rate cut expectations, and easing U.S. – China tensions, though warnings from the IMF, Fed, and BoE highlight valuation risks.
• Asia stands out as an investment bright spot, with Goldman Sachs emphasizing China’s economic importance and Morgan Stanley bullish on growth in Hong Kong, China, Japan, and India, particularly in AI, EVs, biotech, corporate reforms, and infrastructure.

In the wake of a year marked by unprecedented equity surges, propelled by advancements in artificial intelligence and anticipated monetary easing, leading financial institutions are tempering investor optimism with measured caution. Goldman Sachs (GS) and Morgan Stanley (MS) executives, speaking at the Global Financial Leaders’ Investment Summit in Hong Kong, emphasized that while global markets have reached record territories – U.S. benchmarks over the past month, Japan’s Nikkei 225 and South Korea’s Kospi at fresh highs, and China’s Shanghai Composite at its strongest in a decade amid easing U.S. – China tensions and a weakening dollar – a period of consolidation appears inevitable.

David Solomon, CEO of Goldman Sachs, articulated a probable 10 to 20% drawdown in equity markets within the next 12 to 24 months, framing it as a routine recalibration rather than a harbinger of distress. Such movements, he observed, are intrinsic to sustained bull phases, where assets advance before pausing to allow reassessment. Solomon underscored the firm’s consistent guidance to clients: maintain exposure to markets and periodically refine asset allocations, eschewing attempts at precise timing. A 10 to 15% pullback, he added, recurs frequently even amid upward trajectories, without undermining core strategies for capital deployment.

Echoing this perspective, Ted Pick, CEO of Morgan Stanley, advocated for embracing these intermittent retreats as beneficial resets. He described 10 to 15% drawdowns – untriggered by macroeconomic ruptures – as constructive, fostering resilience without derailing broader progress. This stance aligns with broader institutional signals, including the International Monetary Fund’s alerts on potential abrupt adjustments and reservations from Federal Reserve Chair Jerome Powell and Bank of England Governor Andrew Bailey regarding elevated valuations.

Yet, amid these tempered outlooks, Asia emerges as a compelling counterbalance, buoyed by structural tailwinds and recent geopolitical progressions, such as the U.S. – China trade accord. Goldman Sachs anticipates sustained appeal for China among global allocators, affirming its status as one of the world’s premier economies. Morgan Stanley, similarly optimistic, identifies distinct growth trajectories in Hong Kong, China, Japan, and India, each contributing to a cohesive regional narrative. In Japan, ongoing corporate governance enhancements promise enduring value creation, while India’s expansive infrastructure initiatives signal multi-year opportunities. Pick expressed particular enthusiasm for these markets, noting their divergent yet synergistic dynamics.

Within China, Morgan Stanley spotlighted artificial intelligence, electric vehicles, and biotechnology as pivotal sectors, where innovation intersects with policy support to drive expansion. These themes resonate with historical patterns in emerging markets, where targeted reforms and technological adoption have historically amplified returns during global rotations away from overextended developed equities. Investors attuned to these shifts may find Asia’s mosaic – blending maturity in Japan with dynamism in India and China – offering diversified avenues to navigate prospective volatility, reinforcing the enduring wisdom of strategic positioning over reactive maneuvers.
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