Will China be able to boost GDP?

- Plus: The outlook for IPOs # # --------------------------------------------------------------- The key takeaways today: - Emerging stock markets could overtake developed markets - The case for investing in HBCUs - The backdrop for IPOs is getting better Was this newsletter forwarded to you? ([Sign up now.]( --------------------------------------------------------------- Emerging stock markets projected to overtake the U.S. by 2030 The stock market capitalization of emerging markets is [forecast to eclipse that of the U.S.]( and other developed markets in less than a decade, Goldman Sachs economists [Kevin Daly and Tadas Gedminas write in the team's report](. - Emerging markets' share of the global equity market is expected to rise from around 27% currently to about 35% in 2030, 47% in 2050, and 55% in 2075. India is expected to have the largest increase in global market cap share — from a little under 3% in 2022 to around 8% in 2050 and 12% in 2075 — reflecting a favorable demographic outlook and rapid GDP per capita growth. - China's share is forecast to rise from 10% to about 15% by 2050 but amid a demographic-led slowdown in potential growth, it's expected to then decline to around 13% by 2075. - EM market capitalization is projected to exceed the U.S. by the end of this decade. The U.S.'s share of global equity market capitalization is projected to fall from 42% in 2022 to around 35% in 2030, 27% in 2050, and 22% in 2075. - To project the growth of global capital markets, our economists built on their [forecasts for long-term economic expansion](. They found that though real GDP growth has slowed in both developed and emerging economies in the past 10 to 15 years, income convergence between emerging and developed economies remains intact. --------------------------------------------------------------- Forecast Change: China's GDP will grow less than expected in 2023 After a strong start, China's economic recovery has fizzled since reopening from Covid restrictions, according to Goldman Sachs Research. While parts of the services sector are rebounding, activity data in May showed that the property market — the largest sector in the economy — weakened again. And even though the stumble in the property sector and a sharp decline in exports triggered support from policymakers, our economists don't expect those measures to be as large or forceful as during previous economic cycles. Given those pressures, our economists lowered their annualized, quarter-over-quarter growth forecast for Q2 GDP to 1.0% (versus 4.9% previously). They project growth to accelerate to 6.5% in Q3 (vs. 5.3% previously) on more policy support and as the drag from the inventory cycle fades. These changes reduce their full-year real GDP growth forecast for 2023 from 6.0% to 5.4% and their 2024 full-year real GDP growth forecast from 4.6% to 4.5%. “On net, we think the persistent growth headwinds (property slowdown and confidence deficit in particular) are likely to win the upper hand in the tug of war between weakening growth momentum and increased policy easing,” Chief China Economist Hui Shan writes in the team's report. --------------------------------------------------------------- Historically Black colleges are critical for equality and need more funding As the U.S. celebrated Juneteenth this week, Goldman Sachs Research published a report on the importance of historically Black colleges and universities (HBCUs) to American society. It shows that these institutions have had a vital role in the education and equality for Black Americans for more than 185 years. But even as racial disparities in American education persist, HBCUs are systemically underfunded, receive fewer private donations and have smaller endowments, [Goldman Sachs Research Chief Operating Officer Gizelle George-Joseph and Goldman Sachs economist Devesh Kodnani write](. A few highlights from their research: - While Black Americans have experienced significant gains in higher education, Black students' graduation rates remain lower than the national average. HBCUs offer affordable education for low-income Americans — students at these schools often come from less advantaged backgrounds, live in poorer neighborhoods and do not graduate from high schools that offer the necessary college preparation. - Private HBCUs experienced a 43% decline in federal funding per full-time student from 2003 to 2015. Strikingly, the disparities in federal funding between private HBCUs and private non-HBCUs had narrowed in the early 2000s, but progress has since stalled. - Public HBCUs have 54% less in assets per student than public non-HBCUs, while private HBCUs have 79% less than private non-HBCUs. George-Joseph and Kodnani suggest several first steps the public and private sector can take to help HBCUs flourish. In the public sector, these include upholding laws that mandate HBCU support and create access to federal resources, ongoing financial assistance for lower-income families, increasing the number of Pell Grant recipients and dollar amounts, and equitably allocating federal and state funding. The private sector can continue to play an active role by creating pathways for students at HBCUs to support college attendance and graduation, making donations without restrictions so HBCUs can direct funding to the initiatives where it's most needed and setting aspirational goals for hiring HBCU interns and graduates. --------------------------------------------------------------- Are IPOs poised for a comeback? The macroeconomic backdrop for IPOs in the U.S. is improving, according to Goldman Sachs Research: The [GS IPO Issuance Barometer has risen to 93]( a level consistent with the typical frequency of IPOs. (A reading of 100 is equal to the median number of realized IPOs historically in a given month.) The barometer is based on five components: S&P 500 drawdown (as measured by how far the index trades from its trailing 52-week high), CEO confidence, the ISM Manufacturing Index, the six-month change in two-year Treasury note yields and the S&P 500's trailing enterprise value/sales. Stabilizing prices in the stock market have been the main driver behind the rebound in the IPO barometer, Chief U.S. Equity Strategist David Kostin writes in the team's report. CEO confidence has also improved, even though the median professional forecaster gives a 65% probability of recession over the next 12 months. Shorter-term Treasury yields have reached a peak amid signs the Fed is close to the end of its hiking cycle. Stock valuation multiples, meanwhile, are still elevated by historical standards. The ISM manufacturing index is the only variable in the barometer that hasn't improved since September 2022. Our economists' forecasts — which project a [25% chance of recession]( in the next 12 months — indicate the environment for IPOs could improve further in the second half of the year. In the event of a “soft landing” for the U.S. economy — characterized by stable equity prices and interest rates, modestly improving CEO confidence, an uptick in the ISM Manufacturing Index and flat valuation multiples — the IPO Issuance Barometer would equal 119 (compared with 93 as of May 31), signaling an even more supportive backdrop for IPO activity. --------------------------------------------------------------- GQG Partners' Rajiv Jain on building a $100 billion asset manager Betsy Gorton of Goldman Sachs and Rajiv Jain of GQG Partners. When GQG Partners' Rajiv Jain set out to build a new asset management firm, he wanted to start with a clean slate. “I made a lot of mistakes — investing mistakes — over my career,” he explains in the latest episode of [Goldman Sachs Exchanges: Great Investors](. “The question is: What have I learned and how do I improve it? And for that, nothing is better than starting with a clean sheet of paper.” That mindset was also behind Jain's decision to hire a new team. “Most of the teams end up being almost too cohesive. I like friction…How do you create healthy friction?” Since co-founding GQG in 2016, the company has grown to more than $100 billion in assets under management. Part of Jain's success stems from making bold moves, such as significantly reducing consumer staples during the 2016 to 2017 period, reducing holdings in some faster-growing tech stocks in late 2021 and adding to energy. “When fundamentals start changing, you've got to keep reacting rather than being dogmatic,” he tells Goldman Sachs' host Betsy Gorton. “It's very easy to go into your own cocoon and say, ‘Oh, these are good businesses and we'll be fine long term.' The problem is, it might be too late by the time you realize that the businesses are [in a] structural decline.” Jain says his ability to adapt and incorporate new perspectives has helped him over his investing career. “That is the important part of survival, so to say, in this business. It has to be adjusting to incorporate new thinking.” --------------------------------------------------------------- The Markets: Can the global economy withstand higher interest rates? 🎙️ Stock markets from London to New York shuddered this week as major central banks raised interest rates or, in the case of the Federal Reserve, signaled more tightening could be ahead. We spoke with [Ashish Shah]( chief investment officer of Public Investing in Asset & Wealth Management, about how monetary policy is rippling through global assets in this week's Markets podcast. Start your Friday mornings with our new podcast, [The Markets from Goldman Sachs Exchanges]( In just 10 minutes or less, we break down the key issues moving markets. Find us wherever you listen to podcasts. --------------------------------------------------------------- Quoted at GS “You have to get pretty comfortable with failure…It really has to be more about the process. You have to derive the fulfillment from the process, not from the success.” Keller Rinaudo Cliffton of Zipline — Zipline CEO and co-founder Keller Rinaudo Cliffton shares his advice for entrepreneurs on an episode of [Goldman Sachs Talks](. He joins Goldman Sachs' Ryan Nolan to discuss Zipline's mission to reimagine worldwide logistics, the complexities of scaling new hardware systems and why he launched Zipline's services in Rwanda first. [Watch the full interview]( --------------------------------------------------------------- Briefings Brainteaser: Which region has the largest market cap? Our economists forecast the stock market capitalization of emerging markets to overtake developed markets in the coming years. Which of these places had the largest market cap as of 2022? A) Central & Eastern Europe, Middle East & Africa (CEEMA) B) Latin America C) India D) Euro area [Check the answer here.]( --------------------------------------------------------------- Goldman Sachs in the news [CNBC]( June 19 [We expect the U.S. to become self-sufficient in battery cells by 2026, Goldman Sachs says (3:22)]( [CNBC]( June 18 [Goldman joins Wall Street banks in cutting China's growth outlook as post-Covid bounce fades]( --------------------------------------------------------------- --------------------------------------------------------------- Some of the images used in this newsletter are sourced via Getty Images. The data provided in this newsletter is for information purposes only and should not be construed as investment or tax advice nor as a recommendation to buy, sell, or hold any particular security. 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