Emerging-market equities look set to post double-digit returns next year after a tumultuous 2018 in which they tumbled into bear market territory, according to Goldman Sachs Group Inc.

With the U.S. economy likely to expand through 2020 and China managing its bumpy slowdown with bouts of stimulus, developing-nation shares will probably return 12 per cent in dollar terms while assets as a whole will post modest gains in 2019, Goldman strategists led by Kamakshya Trivedi in London wrote in a report. They cite improving growth outside China, cheaper valuations and the home stretch of Federal Reserve tightening.

"Returns may be better for the next six months relative to the subsequent six months, especially if concerns about the next U.S. recession grow over that time," the strategists wrote. "Volatility is also likely to be elevated around this narrow path to positive performance as these risks ebb and flow."

Goldman said emerging-market stocks offer the most upside, particularly after the major drawdown in Chinese shares. Developing-nation currencies will probably climb by 2 percent on average amid a weaker dollar, while local rates return around 10 percent and sovereign bonds return 5.5 percent.

Here are some of Goldman’s top 2019 picks:

• Asian stocks will outperform Latin American peers in 2019 as the market has become overly pessimistic on the growth outlook, and Chinese government will probably prevent a "significant slowdown" by using fiscal stimulus
  • Says go long Taiwanese stocks versus Brazilian counterparts
• EM currency undervaluation signal less strong than before 2016 rally
  • Opportunities from the Philippines to Chile and Israel
  • South African rand, Colombian peso and Mexican peso offer real beta opportunity
  • Cautious on the Argentine peso and the Turkish lira
  • Sees value in frontier currencies in Ghana, Ukraine and Kazakhstan
• Scope for higher-yield nations from South Africa to Mexico, Indonesia, Colombia and India to stabilize or even fall over next 12 months
  • In lower-yield names from Poland to Hungary, Chile, South Korea and Thailand, long-end rates could increase beyond forwards
  • High versus low trade seems "tactically attractive"
• Recommend "quality over beta" in sovereign credit
  • Value in higher-rated sovereigns in the Middle East and Asia

--With assistance from Jose Enrique Arrioja