3 questions to Joseph Mouawad on Emerging Market Debt

I would highlight three main reasons for investing in emerging market debt today:
The first one is to escape the financial repression: developed markets offer low and most negative yields adjusted for inflation since the second world war, while the emerging world is the only place that still offers positive yields even in real terms.
The second reason is because the market timing is right: our central scenario for emerging markets is a constructive growth prospect with the continuation of the post-pandemic recovery and expansionary policy. This constructive growth narrative should not be impacted by the gradual Federal Reserve normalization. Furthermore, emerging markets tend to benefit from an inflationary environment as these countries are rich in commodities and manufactured goods which act as an inflation hedge.
And last but not least, the large investment universe and liquidity offered by emerging markets is a real bulk of opportunities. As an example, emerging market debt represents more than 30% of the global bond universe, with China being the second biggest bond market¹.

The global recovery from the reopening of economies has resulted in a faster rebound in demand than in supply in many sectors creating several bottlenecks. These bottlenecks are expected to ease gradually, but inflationary pressures will persist to varying degrees in different regions, as demand remains extremely strong across the various regions. And the recent sell-off on rates largely reflects central banks turning more cautious with respect to elevated inflation levels globally. As an example, in this context, we have a cautious positioning on core rates via short positions on the short end of the US curve and we favor emerging local debt which is attractive in terms of fundamentals. Indeed, positive real yields are rare in the developed world where most interest rates are well below the inflation rates they are witnessing.

Our approach in our Carmignac Portfolio EM debt fund is quite unique, thanks to three main differentiating characteristics:
First of all, we implement a highly flexible investment process. The fund’s value proposition is its flexibility to operate within a large investment universe while benefitting from a wide range of risk management tools, allowing it to build attractive risk-adjusted portfolios at any point in the cycle.
Also, the strategy we deploy has a solid track record, as it was initially run in our multi-asset emerging Fund Carmignac Portfolio Emerging Patrimoine since September 2015. This approach proved its capabilities by demonstrating attractive absolute and relative performance.
In recognition of the Fund’s investment approach, Carmignac Portfolio EM Debt is rated 5 stars by Morningstar while I am rated AAA by Citywire².
Finally, Carmignac Portfolio EM Debt has a sustainable objective: the Fund follows a socially responsible investment approach and aims to invest in countries that are making progress in some or all of the three Environment (E), Social (S) and Governance (G) dimensions. The Fund is also classified Article 9 according to the SFDR³.

This approach proved its capabilities by demonstrating attractive absolute and relative performance

- Joseph Mouawad