Following an engaging two days of discussions and networking at the IM|Power Online conference, our Headline Partner at the event, Ninety One, have summarised the key messages from day 1.
Keynote interview: Top CEO Insight – Investing for a world of change
Hendrik du Toit, Chief Executive Officer at Ninety One, spoke to Lindsay Williams about Investing for a world of change. Here are some of the highlights from their discussion:
Going public and a game-changing six months
Hendrik stated: "Amid the COVID-19 turmoil, we asked ourselves at Ninety One what was important and what we needed to do. Our answer was that we had to deliver what we promised our clients, our shareholders and our staff; to complete our demerger from Investec and our transition to Ninety One, go public as planned and not hide and wait for better times."
"We did that and delivered decent annual results, navigating the markets for our clients, despite obvious challenges ahead."
South African DNA and global opportunities:
Speaking on the origins of the company and the history behind it, the CEO also mentioned: "We are very proud to have started in an emerging market in ’91 nearly 30 years ago, develop a global footprint and today, compete in the world’s largest markets."
"We are a leading player in emerging markets, for example. Where did we learn it? In Africa, dealing in local currency. It’s a microcosm that has also taught us about major challenges faced by two thirds (or more) of the developing world."
"If you believe that the weight of the global economy will be east of here, i.e. in Asia (which we do), then emerging markets have a significant case in any portfolio alongside developed markets."
Making a difference during COVID-19:
Hendrik mentioned that "Ninety One have a philosophy that says, “do the right thing,” and we want to be known as decent citizens. In response to COVID-19 we have:
- Allocated a substantial amount to support relief efforts through the Solidarity Funds in Southern Africa.
- Encouraged employees to donate generously and we match that. So, on weekends they are running in global triathlons and marathons alongside other fundraising efforts, boosting morale across our global community.
- Helped strong companies in need through our new Ninety One South Africa Recovery Fund, which will help companies through the crisis with early capital and engagement. This initiative has resulted in very good dialogue with our portfolio companies and clients."
Sustainability, right and wrong:
Ninety One have also put sustainability at the heart of their business, investing in sustainable companies that can go through generations and produce healthy cash flows for shareholders.
The leader noted: "When it comes to companies that don’t fit our sustainability criteria, we engage heavily. If they still don’t clean up their act, and we have to choose between right and wrong, we choose right. But, I see more impact in positive engagement with, for example, mining companies decarbonising rather than through disinvestment and only choosing clean businesses."
"By and large, right is right and wrong is wrong. Now we need these companies to produce simple, fair, clear data, which is why the TCFD and COP26 are so important – the world must get a governance framework and we must work together to win this battle."
Active returns and a world of change:
There is a substantial place for deliberate, active capital allocation as opposed to rear-view mirror investing.
Some markets are also notoriously inefficient, China for example, or across emerging market corporate debt and subsets of credit. These are clearly areas that need specialist knowledge.
Hendrik noted: "I can’t see the entire capital market working efficiently when everyone is passive; the top ten businesses today are not the top ten of ten years ago. Who will invest in new companies, or engage with them to do the right thing? The dynamic world is forged by entrepreneurial energy colliding with active capital allocation. That is not going to stop, rather, following COVID-19 we expect that will accelerate."
Keynote: Lessons learned from COVID-19 – The economy and industrial production
Against the view that globalisation is coming to an end, the pandemic has clearly sharpened and accelerated many trends we were already seeing before it hit.
It was noted, trade and air travel may never quite be the same, the free flow of ideas seems increasingly restricted across the world and there has been a distinct lack of coordination amongst leaders throughout this crisis. But this is unlikely to lead to deglobalisation.
Thus, rather, we are heading for a multipolar world that’s more regionalised, with perhaps three major regions: US, China and Europe. Each will have different ways of doing things, with regards to domestic policies, flow of ideas and healthcare. Smaller countries will have to pick sides.
Debt to GDP was already unprecedented before the massive stimulus response to COVID-19, now we’re pushing off-the-scale levels. This will continue widening the chasm in wealth inequality and will weigh on the world economy for years to come.
In future, we will see different sorts of debt instruments emerge and a more active role of central banks in markets, as with the Bank of Japan and the US Federal Reserve doing things we never thought would happen.
The growth in e-commerce and the digital economy is here to stay. E-commerce and usage figures have soared throughout the crisis as we embrace the new normal.
Four things for investors to bear in mind:
1) The world will be more fractured in future, as the differences in how governments have dealt with a similar problem have started to make clear
2) Strategic investment will be key – look at businesses that are self-sufficient and less sensitive to the cycle and disruptions in global supply chains (and that make sense geopolitically). Green investment in Europe has risen to the top of the agenda
3) Take a regional approach to a portfolio of global companies. National champions in many countries will become even more supported
4) Currencies will be far more interesting as an investment. The US dollar will remain the world’s reserve currency for now, but for how long? If we are a heading for a multipolar world, the Chinese renminbi may rise in influence and even the euro’s viability is underpinned by the actions of its policymakers
Ninety One’s view
- We recently explored a number of similar themes in detail – relating to debt, deglobalisation, the international monetary and financial system,the rise of state power, and the future of work and digitisation
- The impact of the pandemic on markets can be grouped into three conceptual categories: forks in the road, accelerators, and equalisers. Governments are clearly at forks in the road when it comes to stabilising debt, while the trend towards the globalisation of services that was evident pre-crisis will accelerate. Meanwhile, COVID-19 is an equaliser in the way it draws attention to inequalities in the system.
- Read the Great Shutdown series to learn more about our views and where we offer asset allocation observations as we think about the next market regime.
The Great Shutdown and the Next Regime – Assessing the medium term impact of COVID-19
In conversation with Peter Flavel: What are the priorities for wealth management firms?
Peter Flavel, CEO, Coutts, was in discussion with, Michael O’Sullivan, Author, ‘The Levelling’. Here's what was said.
How is Coutts approaching the new normal? What’s your secret?
Peter stated: "Getting everyone up and running in ways we never expected was challenging. Regulatory approvals, payments, Coutts 24, replacing things that needed a wet signature with a digital one overnight."
"The key was communication. In times of adversity clients remember what you did and didn’t do."
What do you mean by being more than a private bank?
The CEO noted, "Thomas Coutts encapsulated it best with his “singularly clear judgment, with a warm and affectionate heart”.
"We are not just financial planners; we create a community for our clients. For example, ‘Coutts in conversation’ with Professor John Bell helped clients gain insight into COVID-19."
How will the industry respond to wealth inequality?
It was also discussed how the industry will tackle wealth inequality from 'privileged positions'. A light will be shone on the industry and wealthier clients may face higher taxation due to the governments’ extended debt levels. Investors need to be cognisant of these changing trends and plan appropriately.
Do you think asset owners should rethink the 60/40 equities/bonds allocation?
The likely forthcoming volatility may lead asset owners to a higher allocation in cash.
There will be more formal segments for sustainable investing, private assets and private debt instruments. Finally, there will be more distressed credit instruments as a response to the extraordinary debt piles around the world.
Ninety One’s view
- We believe that understanding history while it is being made is vital for guiding investors through volatile times. Our Great Shutdown series aims to do this for COVID-19.
- The unprecedented policy action from governments globally to cushion the virus impact has led to significant extra debt being added to already high levels. This debt will need to be repaid eventually. We believe financial repression is the most likely outcome.
- By investing sustainably, we aim to help people lead better lives in a better world – making a positive difference to people and the planet while delivering long-term investment returns.
Further reading from Ninety One:
- The Great Shutdown and the Next Regime: a summary of the series and broad asset allocation observations
Building resiliency in times of uncertainty and change
In this session, Lisa O'Connor, Head of Capital Markets Strategy at SWIFT, offers insight into capital flow trends after a volatile first quarter, and explains why more financial institutions are using cloud technology.
Implied volatility in both securities and FX rose sharply in weeks 5-12 of this year – about 70% of 2019’s weekly average but have returned to more normal levels since that peak.
Traffic is growing, but transaction sizes are now smaller, making for a challenging market; there is no definitive guide for what the future may bring, so flexibility is very important.
There are a range of scenarios, ranging from a rapid return to normal and a V-shaped economic recovery to a more bearish outlook where staff co-location is frequently impossible, and a depression consumes the economy.
SWIFT itself has sought to reduce the burden on its customers, delivering virtual events, extending deadlines for new software rollouts.
More front-to-back integration by custodians is expected in order to rationalise and boost efficiency.
Financial institutions moving to the cloud is a growing trend. Security is crucial and is something SWIFT believes it has considerable expertise with.
The role of tech within finance will accelerate further in the coming years. Some managers may choose to enhance their own operating platforms and then potentially provide this to third parties to deliver a source of revenue; cites Blackrock/Aladdin.
Ninety One’s view
- At Ninety One, we believe the best offence is a good defence.
- Developed economies are pushing boundaries when compared to financial markets through history. Debt burdens across many governments and corporates are rising against a backdrop of ultra-low interest rates. And while geopolitical risks are a constant factor influencing markets, typical investor safe havens can often lack the protective features that helped portfolios before.
- In these uncertain times, we believe investors need to look further and often in different places to find resilient investments powered by a cautious and forensic approach
Further reading from Ninety One
Investing in Asia - Focus on resilient alpha
In this session, Qing Wang of Chongyang International Asset Management and Grace Ng of Ping An Asset Management, discuss securing alpha in Chinese capital markets in the current environment.
Here are the topics that were discussed, broken down.
Equities (Qing Wang)
Value as an investment strategy has underperformed for years, especially in US equity markets; however, the pattern in China is different, with value outperforming between 2011 and 2018. This is likely due to the divergence in both business and liquidity cycles in the two markets. China still has a more traditional liquidity cycle, so Value can generate alpha.
There is a high proportion of retail investors in Chinese equities, frequent trading. This lifts volatility, on the back of limited information, and inadequate regulatory oversight. Therefore, there is an attractive opportunity for long-term investors who can dissect this information.
After the pandemic, it is important to have a long-term focus. Don’t worry about missing short-term rallies. Given the high volatility of this market, investors will be presented with attractive opportunities sooner rather than later. Focus on high quality growth companies.
Fixed income (Grace Ng)
In the fixed income space, bottom-up credit selection is vital and even more important now. Having a sizable onshore network helps understand a company’s business model and the way it operates.
Corporates have benefited from favourable government policy, incentivising the issuance of green bonds to obtain credit. For international investors, allocating to Chinese green bonds means they can also improve their ESG profile.
The market for Chinese green bonds has started to develop, with the PBOC and other regulators attempting to synchronise the market by aligning it with international rules.
It is possible to conduct thorough analysis of the greenness of a bond as a lot of documentation is transparent and available to access.
The onshore Chinese bond market is still getting inflows even with the pandemic, and the sectors being driven by this approach are those including renewables, tech and telcos. More investment opportunities should appear in these sectors in the coming years.
Ninety One’s view
- After a period of astonishing growth and transformation, China is on the cusp of becoming the world’s largest economy and is progressing towards developed-nation status. The country already possesses the second-largest equity and bond markets.
- As we have seen over the last few years, even if you are not currently considering allocating to Chinese onshore assets, your portfolio will still be affected by decisions made in Beijing, no matter where you are invested.
- We continue to closely analyse the evolution of China’s capital markets and its potential impact on global markets.
Further reading from Ninety One
All investments carry the risk of capital loss.
This communication is provided for general information only should not be construed as advice.
All the information in is believed to be reliable but may be inaccurate or incomplete. The views are those of the contributor at the time of publication and do not necessary reflect those of Ninety One. Any opinions stated are honestly held but are not guaranteed and should not be relied upon.