Global Stocks Could Fall 10–20% Over Two Years

Global financial markets may be facing a reality check after this year’s relentless surge, with Goldman Sachs and Morgan Stanley warning investors on October 4 to prepare for a potential market correction over the next two years.

Global Equities Reach Record Levels

Stocks around the world have climbed to record highs, fuelled by AI-related gains and expectations of interest rate cuts. In the past month, major US indexes have reached new peaks, Japan’s Nikkei 225 and South Korea’s Kospi have risen to fresh highs, and China’s Shanghai Composite has hit its strongest level in a decade, helped by easing US-China tensions and a weaker dollar.

Goldman Sachs CEO David Solomon told the Global Financial Leaders’ Investment Summit in Hong Kong that a 10 to 20% drawdown is likely within the next 12 to 24 months.

«Markets run, and then they pull back so people can reassess,» he said.

Solomon emphasised that such pullbacks are a normal part of long-term bull markets, advising clients to stay invested and focus on portfolio allocation rather than attempting to time the market.

«A 10 to 15% drawdown happens frequently, even during positive market cycles,» he added. «It does not change your fundamental approach to allocating capital.»

Healthy Pullbacks Are Part of Market Cycles

Morgan Stanley CEO Ted Pick, speaking on the same panel, said investors should view periodic declines as healthy, not as signals of crisis.

«We should also welcome the possibility of 10 to 15% drawdowns that are not triggered by macroeconomic shocks,» he said.

Their caution follows recent warnings from the IMF about a potential sharp correction, alongside remarks from Federal Reserve Chair Jerome Powell and Bank of England Governor Andrew Bailey on overvalued stocks.

Asia Remains a Bright Spot

Both banks highlighted Asia as a promising region over the coming years, supported by developments such as the US-China trade pact. Goldman Sachs sees continued interest in China from global investors, noting it remains one of the world’s «largest and most important economies.»

Morgan Stanley singled out Hong Kong, China, Japan and India for their long-term growth potential. Japan’s corporate governance reforms and India’s infrastructure expansion were identified as multi-year investment themes. Pick also highlighted China’s AI, EV and biotech sectors as areas of particular excitement.

«It’s hard not to be enthusiastic about Hong Kong, China, Japan and India, three different narratives but all part of a broader Asia story,» he said.