Carmignac Portfolio Emergents1 returned +9.8% over 2023, compared with +6.1% increase for its reference indicator2. This performance was achieved against a backdrop of further underperformance by emerging markets, penalized mainly by economic and geopolitical tensions in China. In this report we take a look back at 2023 by analyzing the fund by major geographic zones, with the "country" factor taking precedence over "sector" or "style" factors in 2023.
The main event at the start of 2023 was China's reopening after the government's U-turn on health policy announced at the end of 2022. This unexpected turnaround gave rise to strong optimism about the prospects for economic growth and the government's capacity for pragmatism. But the upward momentum of the early part of the year soon faded, to the detriment of fears of an escalation in geopolitical tensions following the episode of the spy balloon in American skies. Then, China's economic growth figures began to disappoint rapidly, with contagion from the real estate sector's problems to the rest of the economy. With this in mind, valuation multiples contracted once again, resulting in another year of pronounced underperformance.
However, we would like to bring a crucial element regarding Carmignac Portfolio Emergents’ investment philosophy. Although the fund has been overweight China since 2020, the contribution of our Chinese portfolio was positive over the period, thanks to our expertise in China, which enables us to create value through our stock picking decisions. This was again the case in 2023, thanks mainly to two stocks, the distribution company Miniso, and the education company New Oriental Education. Both stocks had fallen sharply during the various Chinese crises, but our detailed analysis of these companies enabled us to strengthen our positions at attractive levels. Our investment process, focused on cash flow generation and good corporate governance, has enabled us to structurally outperform the Chinese market over ten years. In fact, over 10 years, our Chinese portfolio has posted a cumulative performance of +209.8%%, compared with +35.8% for the Chinese stocks in the reference indicator3.
At the end of the year (31/12/2023), our Chinese portfolio represented 31.5% of the fund’s net assets, compared with 26.5% for our reference indicator.
Fortunately, the prevailing pessimism in China did not spread to its Asian neighbors. Korea (17.5% of the fund) and Taiwan (9.8% of the fund) in particular benefited from investors' attraction to Artificial Intelligence. Our two biggest holdings, Taiwan Semiconductor and Samsung Electronics, made a positive contribution to the fund's performance in 2023, as they are at the heart of the production facilities for the semiconductors and new graphics cards that Nvidia will need to produce for the development of various AI applications. These companies have underperformed the "Magnificent 7" due to the Taiwanese elections and Samsung's declining profitability, but we believe that the near-monopoly positioning of these two companies in foundry and DRAM memories should enable them to catch up with the stock market performance of their US counterparts in 2024.
India is a country that benefits from excellent international positioning, with favorable demographics, a high-quality workforce and relatively low political risk in this election year. We increased our exposure to India (11.7% of the fund) after adding a new position, Embassy Office Parks. This real estate company owns commercial and office real estate, mainly in the city of Bangalore, where its clients include most of the flagships of the Indian IT industry and major US tech companies. Bangalore is called "India's Silicon Valley", having focused its development on the high-tech sector for over twenty years, and enjoys economic growth even higher than the national average. Embassy Office Parks has a dividend yield of 7%2, with projected revenue growth of 15%4 over the next three years, and corporate governance that meets the strict requirements of our investment process.
2023 was an excellent year for Latin America, which has long been neglected by investors and which we have largely overweighted. The performance of these countries used to depend on the strength of Chinese growth and commodity prices. In 2023, Latin America was the world's strongest stock market region, despite a disappointing Chinese economy and falling oil and agricultural commodity prices. This was due to structural factors, both economic and geopolitical. Mexico (10.0% of the fund) was the big winner in the geopolitical tensions between the USA and China. The proportion of investments in the economy has risen from 16% to 24%, ensuring strong growth that is benefiting the equities market. Lopez Obrador's Morena party has also shown a surprising economic pragmatism. In Brazil (11.5% of the fund), the economy is benefiting from the reforms of Paulo Guedes, Bolsonaro's Finance Minister, who has reformed the labor market and privatized some of Brazil's economic behemoths. Agricultural and oil production have also risen sharply as a result of high levels of investment over the past fifteen years. Brazil currently produces three million barrels of oil equivalent per day, but production should exceed five million by 2029, providing significant support for the Brazilian balance of payments, and therefore for its currency, the real. For these reasons, we are invested for the long term in this region, with investments in under-penetrated sectors with growth prospects.
With FED reversing its monetary policy at the end of 2023, leading to a sharp drop in US real interest rates, and the fall in oil prices, we expect Asian markets to rebound, especially in view of a cyclical rebound whose first signals we are seeing at the start of this year. China remains the main question mark for the new year. After several years of underperformance, Chinese equities seem undervalued to us, leading to an asymmetrical risk/ reward profile in favor of our positions. Should Sino-American relations deteriorate, we would not hesitate to deploy more capital in Southeast Asia and Latin America.
Marketing communication. Please refer to the KID/KIID, prospectus of the fund before making any final investment decisions. This document is intended for professional clients.
This material may not be reproduced, in whole or in part, without prior authorisation from the Management Company. This material does not constitute a subscription offer, nor does it constitute investment advice. This material is not intended to provide, and should not be relied on for, accounting, legal or tax advice. This material has been provided to you for informational purposes only and may not be relied upon by you in evaluating the merits of investing in any securities or interests referred to herein or for any other purposes. The information contained in this material may be partial information and may be modified without prior notice. They are expressed as of the date of writing and are derived from proprietary and non-proprietary sources deemed by Carmignac to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Carmignac, its officers, employees or agents.
Past performance is not necessarily indicative of future performance. Performances are net of fees (excluding possible entrance fees charged by the distributor). The return may increase or decrease as a result of currency fluctuations, for the shares which are not currency-hedged.
Reference to certain securities and financial instruments is for illustrative purposes to highlight stocks that are or have been included in the portfolios of funds in the Carmignac range. This is not intended to promote direct investment in those instruments, nor does it constitute investment advice. The Management Company is not subject to prohibition on trading in these instruments prior to issuing any communication. The portfolios of Carmignac funds may change without previous notice. The reference to a ranking or prize, is no guarantee of the future results of the UCIS or the manager.
Morningstar Rating™ : © Morningstar, Inc. All Rights Reserved. The information contained herein: is proprietary to Morningstar and/or its content providers; may not be copied or distributed; and is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.
Access to the Funds may be subject to restrictions regarding certain persons or countries. This material is not directed to any person in any jurisdiction where (by reason of that person’s nationality, residence or otherwise) the material or availability of this material is prohibited. Persons in respect of whom such prohibitions apply must not access this material. Taxation depends on the situation of the individual. The Funds are not registered for retail distribution in Asia, in Japan, in North America, nor are they registered in South America. Carmignac Funds are registered in Singapore as restricted foreign scheme (for professional clients only). The Funds have not been registered under the US Securities Act of 1933. The Funds may not be offered or sold, directly or indirectly, for the benefit or on behalf of a «U.S. person», according to the definition of the US Regulation S and FATCA.
The risks, fees and ongoing charges are described in the KID (Key Information Document). The KID must be made available to the subscriber prior to subscription. The subscriber must read the KID. Investors may lose some or all their capital, as the capital in the funds are not guaranteed. The Funds present a risk of loss of capital.
The Funds’ prospectus, KIDs, NAVs and annual reports are available at www.carmignac.com, or upon request to the Management Carmignac Portfolio refers to the sub-funds of Carmignac Portfolio SICAV, an investment company under Luxembourg law, conforming to the UCITS Directive. The French investment funds (fonds communs de placement or FCP) are common funds in contractual form conforming to the UCITS or AIFM Directive under French law.
In France, Luxembourg, Sweden: The risks, fees and ongoing charges are described in the KID (Key Information Document). The KID must be made available to the subscriber prior to subscription. The subscriber must read the KID. Investors may lose some or all their capital, as the capital in the funds are not guaranteed. The Funds present a risk of loss of capital. The Funds’ prospectus, KIDs, NAV and annual reports are available at www.carmignac.com, or upon request to the Management.
In the United Kingdom: the Funds’ respective prospectuses, KIIDs and annual reports are available at www.carmignac.co.uk, or upon request to the Management Company, or for the French Funds, at the offices of the Facilities Agent at BNP PARIBAS SECURITIES SERVICES, operating through its branch in London: 55 Moorgate, London EC2R. This document was prepared by Carmignac Gestion, Carmignac Gestion Luxembourg or Carmignac UK Ltd. FP Carmignac ICVC (the “Company”) is an Investment Company with variable capital incorporated in England and Wales under registered number 839620 and is authorised by the FCA with effect from 4 April 2019 and launched on 15 May 2019. FundRock Partners Limited is the Authorised Corporate Director (the “ACD”) of the Company and is authorised and regulated by the FCA. Registered Office: Hamilton Centre, Rodney Way, Chelmsford, Essex, CM1 3BY, UK; Registered in England and Wales with number 4162989. Carmignac Gestion Luxembourg SA has been appointed as the Investment Manager and distributor in respect of the Company. Carmignac UK Ltd (Registered in England and Wales with number 14162894) has been appointed as a sub-Investment Manager of the Company and is authorised and regulated by the Financial Conduct Authority with FRN:984288.
In Switzerland: the prospectus, KIDs and annual report are available at www.carmignac.ch, or through our representative in Switzerland, CACEIS (Switzerland), S.A., Route de Signy 35, CH-1260 Nyon. The paying agent is CACEIS Bank, Montrouge, Nyon Branch / Switzerland, Route de Signy 35, 1260 Nyon.
The Management Company can cease promotion in your country anytime.
Investors have access to a summary of their rights in English on the following links: UK ; Switzerland ; France ; Luxembourg ; Sweden.