Carmignac Portfolio Emerging Patrimoine

After a strong rebound in September, emerging equities markets fell back slightly in October amid uncertainty over the implementation of new measures in China and the upcoming US elections.

Market anticipation of a potential Trump victory drove US yields higher and the dollar stronger, weighing on emerging assets and growth-sensitive sectors in particular.

Chinese markets were highly volatile, due to concerns over the US elections. In terms of economic data, the Golden Week consumer figures were mixed. However, at the end of the month, China released positive indicators, such as the manufacturing PMI (NBS and Caixin), which was in the expansion zone for the first time in six months. Retail sales also rose, exceeding market expectations.

In Latin America, political instability and volatile commodity and agricultural prices continued to have a negative impact on local markets.

On the currency front, the US dollar strengthened, driven by resilient data implying a slower Fed easing cycle and the increased likelihood of a Trump victory. Conversely, this weighed on emerging market currencies.

Against a backdrop of a soft landing for the economies and inflation continuing its gradual decline, we remain constructive on emerging markets and maintain a moderate level of modified duration, at around 400 basis points at the end of the period.

On the other hand, we believe that the US elections, and in particular a possible victory for D. Trump, could be a source of volatility for emerging markets. This is why, ahead of the major unpredictable event of the US elections, we have reduced the portfolio's overall risk, by reducing our allocation to certain emerging currencies and local debt (Mexico) and lowering our exposure to equities.

On the fixed income side, we have increased our exposure to real rates and the US dollar, in particular through steepening strategies in the United States, where the longest maturities are likely to be the most affected, particularly in the context of a Trump presidency.

On the equities side, we are also maintaining an overall cautious positioning, with a moderate allocation to China and a balanced exposure, combining high-visibility quality stocks (Asian Tech, India) counterbalanced by companies in less attractive markets but with attractive valuations. We have also reduced our main geographical bets to hedge the portfolio against the geopolitical risks resulting from the US election. The Fund therefore relies primarily on stock selection , with financial health and company valuations our main considerations for the portfolio construction.

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

Finally, we remain cautious on currencies, with increased exposure to the USD and a reduced allocation to EM currencies. However, we are maintaining a selective exposure to central bank currencies that are less accommodative in the context of Fed monetary easing and Chinese stimulus measures (Brazilian real, Turkish lira).