The Fund posted a negative return in May, as did its reference indicator.
Our equity portfolio weighed on the Fund as our South Korean and Latin American stocks depreciated.
The main performance driver was external debt, especially quasi-sovereign PEMEX bonds and Ivorian bonds.
Our local debt from Hungary and Mexico also added to the Fund’s performance, as did our management of emerging market currencies: long on the Chilean peso and short on the Chinese yuan.
We remain optimistic for emerging market assets in 2024.
As the US economy showed its first signs of slowing, we nudged the Fund’s modified duration up towards 400 basis points.
For local debt, we still prefer countries like Mexico and Brazil where real short-term interest rates remain extremely high.
We took profits on our long Chinese positions.
At an external debt level, the Fund remains long on Central & Eastern Europe and Latin America.
During the month we took profits on Miniso and New Oriental of China after their shares rallied. In contrast, we strengthened our interests in Chinese flash sale company VIPShop and real estate firm Embassy.
We increased our equity exposure to 29%, with significant exposure to Asian markets and, in particular, Korean and Taiwanese technology stocks as the artificial intelligence theme is leading to sustained growth in demand for semiconductors and electronic components.
We are keeping our emerging market currency exposure balanced with, in particular, long positions on the Brazilian real and Chilean peso.
Asia | 83.0 % |
Latin America | 15.5 % |
Eastern Europe | 1.5 % |
Total % Equities | 100.0 % |
Market environment
China’s weak economy remains a burden, as reflected in the publication of lower retail sales and a fall in the NBS manufacturing index.
May was also notable for elections in a number of countries (India, South Africa and Mexico), which seem to have increased regional volatility.
Brazil’s central bank cut its key interest rate by 25 bps, as opposed to the 50 bps that had been expected, weighing on the national currency and markets.
Emerging equity markets were down over the month as China and Brazil underperformed.