Carmignac Portfolio Emergents

After a strong rebound in September, emerging markets experienced a slight decline in October, driven by uncertainty surrounding new measures in China and the upcoming US elections.

Market expectations of a potential Trump victory led to an increase in US yields and a stronger dollar, which negatively impacted emerging markets and growth-sensitive sectors.

Chinese markets were highly volatile due to concerns over the US elections. Economic data from the Golden Week showed mixed results. However, by the end of the month, China released some positive indicators, including the manufacturing PMI (NBS and Caixin), which entered the expansion zone for the first time in six months. Additionally, retail sales rose, surpassing market expectations.

In India, rising interest rates and oil prices exerted pressure on the markets, leading to a retreat.

In Latin America, political instability and fluctuating commodity and agricultural prices continued to adversely affect local markets.

In this context, the Fund posted a negative performance, mirroring its reference indicator.

Our positions in India and Taiwan demonstrated resilience and bolstered the Fund's performance. However, we were penalized by our investments in Mexico, Korea (particularly Samsung), and China. The Chinese markets were volatile throughout the month, declining when polls indicated Trump's lead in the swing states.

The primary contributor to our performance was TSMC, which reported encouraging results and continues to experience business growth driven by strong demand for AI-related chip revenues.

Conversely, the main detractor during this period was Samsung Electronics, which announced an extensive reorganization plan aimed at advancing its position in the memory chip sector.

While we remain constructive on emerging markets over the coming months, we believe that the US elections, and in particular a possible victory for D. Trump, can be source of volatility for emerging markets, and particularly for China.

That is why, ahead of the major unpredictable event of the US elections, we prefer to maintain an overall cautious positioning, with a moderate allocation to China and a balanced exposure, combining quality stocks with high visibility (Asian Tech, India) offset by companies in less attractive markets but whose valuations are clearly attractive, especially when corporate governance gives us confidence (China, Brazil).

Following the sharp rebound in the Chinese markets and pending the announcement of the fiscal stimulus measures, we have taken profits on our Chinese stocks that overreacted to the announcements, such as property portal Beike and HK Exchange.

We are nevertheless maintaining a selective exposure to the Chinese market (23% of the fund), with a slight underweight positioning versus our indicator (27%), composed of companies with attractive valuations despite their good fundamentals, and which have substantial plans to return to shareholders.

In contrast, we have added to our Indian (Nexus) and Brazilian (Equiatorial) stocks, which have weak recently and whose valuations are attractive.

We have also reduced our main geographical bets to hedge the portfolio against the geopolitical risks arising from the US election. The Fund is therefore essentially focused on stock selection , with the financial health and valuations of companies being our main considerations in our portfolio construction, as demonstrated by our top ten holdings, which are made up of companies for which we have a high degree of confidence in terms of valuation.