The Iran conflict has exposed the fragility of fossil fuel dependency across Asia. At Carmignac, our emerging market (EM) equity team believes it will prove a structural accelerant for the energy transition and that these emerging economies are best placed to benefit.
Major crises can force changes that years of good intentions could not. The Covid-19 pandemic was a human tragedy but also compressed a decade of digital adoption into two years. E-commerce, remote working, digital payments: trends that had been growing quietly became structural features of modern economies almost overnight.
The combination of the Iran conflict and the Trump tariff shock is doing something similar for the energy transition, according to the fund managers of Carmignac Portfolio Emergents.
Naomi Waistell, co-fund manager of Carmignac Portfolio Emergents, said: "Covid accelerated e-commerce and everything that's online. I think this crisis – the conflict in the Middle East combined with Donald Trump's tariffs – has undeniably pushed governments and a lot of people to invest massively in energy transition and renewables. How can we avoid this kind of crisis happening again? By lowering our dependence on fossil fuels. This is a structural accelerant, not a cyclical reaction."
For investors in emerging markets, the question now is which countries and companies are positioned to lead it.
A different kind of shock
Previous oil crises were painful but contained. The 1970s OPEC embargo targeted specific buyers. The Russia-Ukraine war disrupted gas supplies primarily in Europe.
The current crisis is different in its geography and its urgency. Around 80% of Asia's crude oil imports pass through the Strait of Hormuz1 and when Iran closed it in early March, the shock landed simultaneously across every major Asian economy.
The crucial difference from the Ukraine crisis is the available technology. When Europe had to reduce its dependence on Russian gas in 2022, the alternatives – offshore wind, heat pumps, grid infrastructure – were expensive and slow to deploy. Today, solar panels, batteries and electric vehicles are materially cheaper and faster to scale.
"The combination of this conflict and the tariff environment has pushed governments to invest massively in energy transition and energy storage names," said Xavier Hovasse, co-fund manager of Carmignac Portfolio Emergents. "That case was building before but now it is undeniable."
The two EM countries best placed to benefit
Not every emerging market benefits equally. Two stand out.
China is already the world's leading deployer of renewable energy capacity. "China has added more renewable capacity than the US and Europe combined," said Waistell. Its domestic solar, wind and battery industries have been scaling at a pace the developed world has not matched.
But China's structural advantage runs deeper than generation. It also dominates the global rare earth supply chain: the critical materials required for electric vehicles batteries, defence systems, AI hardware and virtually every advanced technology.
"No matter what happens – for electric vehicles, for batteries, for phones, for AI – you need rare earths," said Waistell. "China is number one by far. They have the full capability: extraction, separation, refining, transformation into the final product. They took on all that capacity when others said it was too difficult. Today, that is why they have the upper hand."
Brazil holds the world's second-largest rare earth reserves. Its refining and processing capacity is still being built out – the specialists are clear this will take time – but its trajectory is established. Brazil has also become a net oil exporter, giving it a fiscal buffer as global energy prices remain elevated, and its electricity grid is already heavily weighted toward renewable generation through hydropower.
CATL: Where the thesis becomes investable
The energy transition is a structural theme. For investors it needs to translate into specific businesses and CATL is the clearest example currently held in Carmignac Portfolio Emergents.
The company is best known as the world's largest EV battery manufacturer. But the more compelling angle today is its position in energy storage systems (ESS): the stationary battery technology that allows grids to absorb renewable power when it is generated and release it when demand peaks. As renewable generation scales across Asia, storage becomes the critical enabling infrastructure.
"CATL is at the crossroads of EV batteries and energy storage," said Hovasse. "Energy storage has become a named strategic priority for the Chinese government. They are very well positioned. In March, when most equity markets fell sharply, CATL performed well. It is a clear year-to-date outperformer."
That resilience in March is instructive: a company positioned at the intersection of energy security and technology proved defensive precisely when fossil-fuel-dependent economies were most exposed.
"We are actively looking to increase our exposure to this space, whether in China or across Asia, where renewable companies are scaling rapidly," said Hovasse.
Sustainability as advantage, not constraint
A question for any sustainability-focused fund is whether excluding fossil fuels limits the opportunity. The answer lies in how the EM investable universe has already been transformed.
During the commodity supercycle of the 2000s, the biggest weightings in the MSCI Emerging Markets index were energy and materials companies – the Russian and Chinese oil and gas names.
Today, however, the index is dominated by tech names like TSMC, Samsung and Alibaba. The fossil fuel component of the universe has shrunk substantially after Russia was removed and several Chinese fossil fuel companies became uninvestable under US sanctions.
What is growing in its place is the category a sustainable mandate is built to capture.
"What we will see going forward are diversified energy companies: utilities combining renewable generation, storage and transmission infrastructure," finished Waistell. "This is exactly where we want to be invested. Thanks to our focus on sustainability, this is one area where we have a genuine competitive advantage – and where we believe there is a growing set of opportunities in emerging markets going forward."
Carmignac Portfolio Emergents
Carmignac Portfolio Emergents F USD Acc Hdg
- Recommended minimum investment horizon
- 5 years
- Risk indicator*
- 4/7
- SFDR - Fund Classification**
- Article 9
*Risk Scale from the KID (Key Information Document). Risk 1 does not mean a risk-free investment. This indicator may change over time. **Sustainable Finance Disclosure Regulation (SFDR) 2019/2088. The SFDR classification of the Funds may change over time.