Carmignac Portfolio Emerging Patrimoine

The main news at the beginning of the year was the inauguration of Donald Trump, with the issuance of several executive orders, including the upcoming tariffs on its main trading partners.

The Federal Reserve opted for a pause in its cycle of rate cuts at its meeting despite less vigorous than expected GDP growth in Q4 2024 at +2.3%, but considering a vigorous level of activity as shown by employment data and consumer spending.

In China, economic data fell slightly in January compared to December, for both the NBS manufacturing PMI and the NBS non-manufacturing PMI. At the end of the month, Chinese markets were closed for the Lunar New Year celebrations.

In this context, emerging assets began the year on an upward trend, supported by the solid rebound of Latin American markets.

Emerging local and external debts (in hard currencies) performed well over the month.

On the currency front, the pause in the appreciation of the dollar benefited emerging currencies, which performed well. In this respect, we can mention the currencies of Latin American countries, which rose over the month.

In this context, the Fund recorded a positive performance, outperforming its reference indicator.

On the local debt side, we benefited from our positions in Brazilian and Czech local rates.

On the external debt side, our positions in the sovereign debt of Ecuador, Egypt and Argentina made a positive contribution to performance.

On the other hand, in a context where credit spreads have tightened, our protections aimed at reducing our exposure to this market made a negative contribution.

On the equities side, the main contributor to performance was the foundry leader Taiwan Semiconductor. The company posted sharply higher fourth-quarter results and continues to benefit from strong demand for AI chips. Similarly, the South Korean company SK Hynix also published good results.

Finally, on the currency front, we benefited from our positions on the Brazilian real, the Colombian peso and the Polish zloty. On the other hand, our short positions on the Chinese yuan weighed somewhat on performance.

In a context of resilient global growth and inflation that continues to fall gradually, we expect the main central banks of developed and emerging countries to gradually continue their monetary easing. Thus, we are maintaining a relatively moderate modified duration level (around 430 basis points).

On local rates, we favour central banks that are lagging the cycle, such as Mexico, Brazil and some Eastern European countries (Hungary) that 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 high-yield bonds, such as Côte d'Ivoire and Colombia.

Over the month, we strengthened our positions in Hungarian external debt following our trip. Hungary has a very orthodox monetary and fiscal policy, with inflation under control and a trade surplus. Despite these good fundamentals, the country offers an attractive spread. On the contrary, we have reduced our positions in Romanian external debt.

In equities, we remain constructive on emerging equities because we believe that current valuations reflect a pessimistic scenario. However, we lowered the equity exposure at the end of the period, initiating short positions on equity indices to protect ourselves against a correction in the equity markets following the DeepSeek news and D. Trump's announcements.

On the equities side, we are maintaining a significant exposure to the theme of artificial intelligence, and have even strengthened it this month with the addition of SK Hynix to the portfolio. In China, on the other hand, we prefer to have a measured allocation with a slight underweighting compared with our reference indicator.

Finally, with regard to currencies, we now have moderate exposure to the US dollar, following the strong rally triggered by Trump's election, and we maintain limited exposure to emerging market currencies. However, we are diversifying our exposure to the currencies of central banks that are less accommodating, while the Fed continues its monetary normalisation and China implements stimulus measures, a selection of Latin American currencies (BRL, MXN, COP), the Hungarian forint, and a short position on the Chinese yuan.