JANA Annual Conference Session Summary – Keynote 3: From Targets to Transition: Emerging Markets, Experience and Opportunities

At the 2024 JANA Annual Conference, the theme “From Tensions to Transformation: Geopolitics, Economics and Sustainable Investing” guided discussions on the global energy transition and its wide-reaching impact on economies and financial markets. One of the most significant sessions was delivered by Hendrik du Toit, Founder and CEO of Ninety One Asset Management, focusing on the role of emerging markets in the energy transition.

Overseeing $US240 billion in assets under management, Hendrik du Toit brings deep expertise in navigating complex global investment landscapes. His keynote addressed the critical role emerging markets must play in the transition to net zero and the capital flows required to drive this shift, setting the stage for the broader conference theme.

Emerging markets as part of a complex transition

Hendrik du Toit began by addressing the ‘messy and complex’ nature of the global transition to net zero, highlighting the significant challenges faced by emerging markets. He explained that this transition is not a straightforward process of ‘going green’ but required a complete restructuring of economies, especially in developing regions. “Emerging markets have been ‘forgotten’ by the developed world, achieving global net zero targets will be impossible without their involvement”, he stated.

This resonated with the conference’s overarching theme, reflecting the ongoing tensions and challenges that investors must navigate as they balance sustainability goals with the realities of the global economy.

Future capital flow and the opportunity for emerging markets

du Toit highlighted the significant financial opportunity within the energy transition, specifically the capital flows into emerging markets needed to finance this transition. He estimated that the new green economy could be as large as China, valued between US$18 and US$22 trillion but that a successful transition requires a rethink of how the current economic base evolves.

He warned, “The existing economic base must move and transition, because it’ll be out of business when the world is in net zero mode,’ highlighting the potential consequences for businesses that fail to adapt. His analysis underscored the urgency for investors to adjust their strategies to seize these opportunities early.

du Toit pointed to the rapid growth in emissions from non-OECD countries, which have surged by 200% since 2000, compared to a decline of 22% in Europe. He flagged China and India as major contributors to this rise, with emissions increasing by 278% and 180%, respectively, highlighting how critical emerging markets are in tackling climate change.

Climate change, private finance and the role of corporates

du Toit acknowledged the state of ‘fiscal exhaustion’ in many Western countries brought on by generous fiscal spending during the COVID era – something he views as having hindered the ability to adequately invest in the climate transition. ‘We didn’t have a lot of time, and now, because of fiscal exhaustion, we’ve lost five years in the fight against climate change,’ he said. As a result, he believes that private finance will be crucial in filling this gap: ‘The solution is corporate, and the solution is private. The solution is not Government.’

du Toit spoke about the energy transition as an inevitable and essential shift, urging that investors who embrace this opportunity in emerging markets can access not only secure returns but also contribute to a more sustainable future. Elaborating on the opportunity, du Toit outlined how the current interest rate differential in emerging versus markets means investors could potentially ‘finance the transition in the next two years at a risk-adjusted premium before it becomes fashionable to invest in these markets again.’

Looking ahead: Increased regionalisation and distributed opportunities

Looking beyond climate change, Mr. du Toit also discussed the broader trend of regionalisation in the global economy. He believes that the world is moving away from a ‘Magnificent 7’ scenario, where a handful of dominant stocks in the US drive global market performance, and toward a more regionally nuanced landscape. He said: ‘We are going into a world which has regional nuance, regional opportunity,’ he explained. This shift will require investors to adapt their strategies, particularly as the era of zero interest rates is now behind us.’

Call to Action: Strategic adaptation for future success

To conclude his keynote address, Mr du Toit made an appeal to the audience, ‘We are living in a world where you probably have to think outsized returns will not exist as we normalise interest rates. Therefore, we will have to eat our wins until the next big wave comes – whether that is quantum computing or whatever it is. It is not just a world of ‘buy an index and forget about it.’  My request to you is to ‘be curious’. Look at things and experiment. And don’t just look at the extraordinary experience of the last decade driven by zero interest rates from the financial crisis right through to COVID. Go and look at longer history when you plan your Strategic Asset Allocations and then you’ll have a much better outcome in the next 10 to 20 years.’

Conclusion

Henrik du Toit’s keynote at the JANA Annual Conference delivered a powerful reminder that the path to a sustainable future is complex, especially for emerging markets. His insights not only underscored the financial opportunities in navigating this transition but also the necessity of private finance and corporate leadership in driving meaningful change. Investors who embrace this evolving landscape, staying curious and adaptable, will be well-positioned to benefit from the shifts ahead.

As we enter a period of regionalisation and redefined global markets, it’s clear that traditional strategies must evolve to meet the challenges and opportunities of the next decade. At JANA, we remain dedicated to supporting our clients through these transitions, helping clients achieve both financial success and long-term sustainability goals.

Key Takeaways

Henrik du Toit’s keynote at the JANA Annual Conference was a timely reminder that the energy transition is not just an environmental imperative but also a vast financial opportunity. Investors who are prepared to embrace the complexity of emerging markets and the capital shifts required for a green transition can access significant returns while contributing to a sustainable future.

• Emerging Markets Are Key: The global transition to net zero cannot be achieved without the active involvement of emerging markets.
• Capital Flow Opportunity: Investors willing to allocate to emerging markets ahead of consensus could benefit from significant returns, as the green economy is forecast to rival the size of the Chinese economy.
• Private Finance Must Lead: With many Western governments experiencing fiscal exhaustion, private finance and corporations will be essential in driving the climate transition.
• Regionalisation is the Future: As the global economy becomes more regional, investors need to adapt their strategies to capture new, distributed opportunities across different markets.
• Curiosity is Key: Investors are encouraged to take a long-term view, experimenting with new strategies rather than relying on past decades’ successes.