2018 Mid-Year Investment Outlook...Facebook Co-Founder Chris Hughes on Fighting Inequality...Taking China’s Stock Market Global

Insights on markets, industries and the global economy [Goldman Sachs]( [BRIEFINGS] May 21, 2018 A Better Balance of Risks: Goldman Sachs Asset Management Releases 2018 Mid-Year Outlook A moderation of economic growth, rising interest rates and this year's sell-off in equities and emerging market assets have set the stage for a better balance of risks across equities and fixed income, according to Goldman Sachs Asset Management's (GSAM) 2018 mid-year outlook, released today. "With lower near-term risks and lower asset prices after the sell-off, we now see markets as more attractive," says Neill Nuttall, co-CIO of GSAM Global Portfolio Solutions. The team expects moderate, but positive, returns in equities; is bearish on government bonds as the market is likely underpricing the pace of future Fed rate hikes; and sees opportunities to add select exposure to credit. Investors, meanwhile, should favor a dynamic investment approach given an expected pick up in volatility later this year, according to the GSAM team. [View report]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=A%20Better%20Balance%20of%20Risks%3a%20Goldman%20Sachs%20Asset%20Management%20Releases%202018%20Mid-Year%20Outlook%20&body=https%3a%2f%2fwww.gsam.com%2fcontent%2fgsam%2fglobal%2fen%2fmarket-insights%2fmarket-strategy%2foutlook%2f2018%2fmidyear-outlook-2018.html%3fcid%3deml-np-briefings-briefings-textlink-201801--) Extended Reality: Looking Beyond VR & AR Above: Jake Siewert and Heather Bellini of Goldman Sachs As quickly as technology has brought to life the new worlds of virtual reality and augmented reality, a broader ecosystem of Extended Reality (XR) is emerging that encompasses both. In the latest episode of our podcast Exchanges at Goldman Sachs, we sit down with Goldman Sachs Research analyst Heather Bellini to discuss why XR is poised to be "the next big computing platform." Bellini sees a spectrum of technologies coming together that range from the deep immersion of virtual reality to the lighter digital overlays on the physical world that augmented reality provides. With applications from e-commerce to healthcare, she expects XR to drive more than $100 billion in sales by 2025. "We think ultimately this AR/VR/mixed reality movement will change the way we interact with technology forever," Bellini says. [Listen to podcast]( [Subscribe]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Extended%20Reality%3a%20Looking%20Beyond%20VR%20%26%20AR%20&body=http%3a%2f%2fwww.goldmansachs.com%2four-thinking%2fpodcasts%2fepisodes%2f05-18-2018-heather-bellini.html%3fcid%3deml-np-briefings-briefings-textlink-201801--) Talks at GS: Chris Hughes on Founding Facebook and Fighting Inequality Above: Michael Paese of Goldman Sachs and Chris Hughes of the Economic Security Project The forces that propelled Chris Hughes' fast-track rise from a modest upbringing to co-founding Facebook with his Harvard roommate Mark Zuckerberg have helped shape his thinking on opportunity and inequality. At a recent Talks at GS session, Hughes, who left Facebook in 2007 and recently published Fair Shot: Rethinking Inequality and How We Earn, described how he became an advocate for using guaranteed income to alleviate poverty. During the session, moderated by Goldman Sachs' Michael Paese, Hughes also discussed the responsibilities and opportunities facing Facebook and other social media companies. "There's no question it's a turning point," Hughes says. After nearly 15 years during which users felt "privileged" to connect with their friends and family on Facebook, the conversations have turned to questions over regulation, privacy and the possibility of compensating users for the data they create. "I think that's a really good thing because it means that we're finally understanding the power that we as users and we as a society have and should have." [Watch video]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Talks%20at%20GS%3a%20Chris%20Hughes%20on%20Founding%20Facebook%20and%20Fighting%20Inequality&body=http%3a%2f%2fwww.goldmansachs.com%2four-thinking%2ftalks-at-gs%2fchris-hughes.html%3fcid%3deml-np-briefings-briefings-textlink-201801--) Briefly...on Taking China's Stock Market Global On June 1, index provider MSCI will include mainland Chinese stocks, known as A-shares, into its benchmarks which are closely watched by international investors and used to guide the allocation of trillions of dollars in assets that are currently tracking them. Kinger Lau, Chief China Strategist of Goldman Sachs Research, and Christina Ma, Head of Greater China Equities of Goldman Sachs Securities, discuss the implications for China and investors. How significant is this move -- which has been years in the making -- for investors? Kinger Lau: While China's initial A-share weighting in the MSCI Emerging Markets Index is small -- representing 0.8% of the EM index after September 1 -- there will be consequential flow implications over the long run since global funds tracking the MSCI indices will have to buy Chinese stocks to comply with their mandates. Importantly, we see this event as a paradigm shift because it transforms China's A-share market from a "nice-to-have" to a "have-to-have" market, and redefines how global equity investors think about their opportunity set and capital allocation over time. Investors can already get exposure to China through offshore-listed Chinese stocks -- H shares that are listed on the Hong Kong Stock Exchange or other foreign exchange or through ADRs on US exchanges. What's different about the A-share market? KL: Investors get broader access to companies that exemplify China's transformation to a consumer-led economy. There are unique sectors in China's domestic market, for example, which offer exposure to healthcare, new economy and service businesses. The market has delivered strong earnings-per-share growth over the past decade. And from a valuation perspective, China A-shares look attractively priced relative to other global equities. The MSCI inclusion appears to be just one step toward China's broader attempts to open up its financial markets. What are the others? Christina Ma: The MSCI event is part of the progressive opening of China's markets and, after its announcement last year, kicked off a series of moves aimed at further institutionalizing China's stock markets. Over the past year, for example, China's securities regulator released guidelines allowing for greater foreign ownership in Chinese joint ventures; introduced rules to woo overseas-listed China companies back home through China Depositary Receipts; and gave global investors greater access to the domestic stock markets through trading links between the Shanghai/Shenzhen and Hong Kong stock exchanges. Ultimately, Chinese regulators want to strengthen and improve the country's equity markets. The benefit for investors is that they should ultimately be able to invest in stronger, blue-chip Chinese companies. What are some of the long-term ramifications? KL: The China A-share market is retail driven, with retail and institutional investors representing about 80% and 20%, respectively, of total turnover. That ratio is reversed in the more-developed Hong Kong market where retail and institutional investors represent 20% and 80%, respectively, of turnover. Markets with high levels of retail participation are typical of developing markets until the culture of investing with professional money managers becomes more pervasive. Additionally, the fact that equities are under-owned by Chinese households compared with other economies, suggest that there is a significant potential for asset allocation flows to equities. CM: The increased participation by international institutional investors is crucial to the long-term development of China's financial markets. Long-only investors make their allocation decisions based on weighted benchmarks and rebalance assets on a regular basis, effectively adding stability to the underlying market. They will help foster an investment culture focused on fundamentals, which would help balance the more speculative nature of retail investors who dominate the domestic market. From our perspective, we're seeing foreign clients doing far more work in China and thinking about their onshore strategies here. 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