GLOBAL - Goldman Sachs Asset Management chairman Jim O'Neill has dismissed attempts to decouple equity performance from economic growth, arguing that discrepancies between current valuations and future growth forecasts create opportunities for arbitrage.

Given greater sensitivity to future growth forecast revisions in growth markets than in the developed world, both Russia and China are still attractive at current levels because equity valuations have not yet reflected upside growth surprises, he said.

His comments today come on the back of a paper, co-authored with economists Anna Stupnytska and James Wrisdale, in which he argued that stock market performance is a lead indicator of economic performance because equities react strongly to future growth forecasts - especially in growth markets.

The paper was a riposte to US economist Jay Ritter's assertion of a negative correlation across 16 countries over a 100-year period.

In a case for paying growth markets "special attention" as long-term investment destinations, O'Neill argued for a renewed emphasis on valuation not only in equities but in growth-related assets including real estate, infrastructure and private equity.

However, he acknowledged that the link between GDP growth and returns was  "not straightforward".

"Where valuations are attractive and growth surprises are likely to occur, equity prices should reward. Where valuations are not so attractive, strong growth may be less important," he said.

GSAM suggested last month that a 100 basis point revision in the next-year forecast would result in a 26% rise in growth market equity prices - almost double that in the developed world. However, O'Neill acknowledged significant variation across growth markets, with India's equity markets most sensitive to forecast changes and Korea's least.

In any case, he argued that "subtleties" in the relationship between growth and returns would become more important in future as growth-economy companies generated a greater percentage of their revenues outside their home country, making them less sensitive to domestic growth surprises and more sensitive to global growth. O'Neill advocated unspecified changes in traditional benchmarks and investment philosophy to reflect the revenue shift.