There has also been a "seismic shift" in investor sentiment on emerging markets for the worse. "The returns were not as attractive as expected, the economic growth rates were not as sustainable as imagined, and the countries were not as stable as believed," the report said.
Common themes in Goldman's pessimism on countries like China, Brazil and Russia include overinvolvement of governments in their economies, increasing reliance on commodities and unfavorable demographic trends.
(Read more: Place your bets: China or Japan?)
Goldman noted that China, for example, has five main problems: "severely imbalanced growth, a weakening demographic profile, financial repression that has distorted allocation of capital, growing pollution that has endangered the health of its population, and an antiquated household registration system known as 'hukou' that has hampered access to education and social services."
In Brazil, Goldman said, the government's large economic role is the most important reason for underperformance. That has created high interest rates, corporate strategy dictated by the government—often because of direct ownership—and high taxes.
Goldman expects "low single-digit" returns for emerging market local debt in 2014 with a range of gains and losses of about 10 percent. For stocks, the bank sees "high single-digit" returns with a range of gains or losses of about 20 percent.
—By CNBC's Lawrence Delevingne. Follow him on Twitter @ldelevingne.