Carmignac Portfolio EM Debt

December was marked by a normalisation of the interest rate environment, with German and US long rates rising by 28bp and 40bp respectively.

Investors revised their rate cut projections for 2025 following the US Federal Reserve meeting, which, despite cutting its key rate by -25bp, adopted a hawkish tone.

Activity remains buoyant in the US in terms of both employment and inflation data, with the core component remaining sticky at 3.3% over the year.

It should be noted that inflationary momentum has also risen in Brazil, prompting the Brazilian central bank to raise its key rate by one point to 12.25%.

On the currency front, the US dollar continued to strengthen following Trump's victory in the US elections, which weighed on emerging market currencies.

Against a backdrop of widespread interest rate rises, the Fund posted a negative performance, outperforming its reference indicator.

On rates, our positions in US debt and our exposure to some emerging market debt, such as that of Brazil, had a negative impact.

However, these losses were partially offset by the positive contribution of our positions in Chinese local rates.

Our credit exposure made a positive contribution, mainly due to our exposure to financials and our selection of external debt in emerging countries, particularly Argentina. Against a backdrop of widening credit spreads, our hedges made a positive contribution.

Finally, on the currency front, although we benefited from our exposure to the US dollar, the fund was impacted by our positions on the Brazilian real.

We again expect global growth to remain resilient, with consumption remaining robust, particularly in the services sector, and inflation continuing to fall gradually. Against this backdrop, we expect the ECB, emerging market central banks and, to a lesser extent, the Federal Reserve, to gradually continue their monetary easing. We therefore maintain a relatively high level of duration, above 6 at the end of the period.

On local rates, we favour central banks that are behind the cycle, such as Mexico, South Africa and certain Eastern European countries (Czech Republic), which benefit from high real rates.

On the emerging external debt front, we are cautious about longer-term investment grade debt, as spreads are already relatively tight. That said, we see opportunities among rated high yield such as Ivory Coast, Colombia and South Africa. We also favour some lower-rated issuers whose fundamentals are improving, such as Argentina.

On credit, we are maintaining our positive bias, albeit cautiously, given the high valuations, and are maintaining a substantial level of hedging on the Itraxx Xover to protect the portfolio from the risk of widening spreads.

Finally, on the currency front, we are cautious on EM currencies given the inflationary potential of some of Trump's policy proposals, which could further strengthen the US dollar. This is why we have a short position on Asian currencies and a 20% position on the dollar.

However, we are maintaining a selective exposure to certain EM currencies, with a preference for Latin American and Central and Eastern European currencies, which offer attractive valuations and carry.