Carmignac Portfolio Emerging Patrimoine

August was an excellent month for EM fixed income assets, with sovereign bonds appreciating in both hard and local currencies, while equities posted subdued performances, penalized by weakness in the Chinese, Korean and Mexican markets.

In China, domestic markets were down, in the wake of the publication of PMI manufacturing index in contraction zone and subdued new bank loans data, underlining weak demand.

In Latin America, equities were mixed: Brazil was up as fears of fiscal slippage eased, while Mexico was down due to the judicial reform that is increasing political uncertainty in the country, just one month before the new Congress takes office.

On the currency front, Asian currencies benefited from the unwinding of carry trades on the yen, while Latin American currencies suffered.

Against this backdrop, the fund delivered a positive performance, slightly outperforming its index.

Our investments in equities were mixed: Chinese stocks weighed on performance, while Indian and Taiwanese stocks made a positive contribution.

On the bond side, our investments in local and external debt both made positive contributions.

In local rates, our long positions in Mexican rates underpinned performance.

On the external debt side, we benefited from our allocation to Argentine and Ivory Coast rates.

Currencies had a slight negative impact, with the depreciation of the Mexican peso. Nevertheless, we benefited from our positioning in the South African rand.

We remain constructive on emerging assets in a context marked by a slowdown in the US economy, which will potentially enable the Federal Reserve to cut interest rates in the near future.

Against the backdrop of a soft landing, we continue to appreciate duration assets and we have kept the Fund's modified duration close to 400 basis points (at fund level).

Over the period, we increased our allocation to local rates in Latin America, particularly Brazilian rates, as we believe that the markets are anticipating a significant number of rate hikes, which we believe to be overdone.

In our allocation, we continue to favor local debt in countries where inflation is falling, real rates are high and monetary easing cycles have been slowed or interrupted. This is particularly true of countries such as Poland, Mexico and South Africa.

As regards external debt, we remain cautious and have added hedges to protect the portfolio against the risk of spreads widening. We continue to favour countries where we are seeing significant improvements (Romania, Ivory Coast).

On the equities side, we raised our equity exposure to 39% at the beginning of the month, after the sharp correction in the equity markets, before reducing it to 32% at the end of the month. We maintain a significant exposure to Asian equities, notably India, where fundamentals are solid, and to Taiwanese technology stocks, where the artificial intelligence theme is gaining lasting momentum and valuations remain reasonable.

Over the month, we strengthened our exposure to Indian equity markets with two new positions: FirstCry, an online sales platform for newborn and children's products, and Nexus Select, a real estate investment trust company (REIT).

Finally, we remain cautious on emerging currencies in a context marked by a global economic slowdown and a sharp drop in commodity prices (and notably oil prices)