Carmignac Portfolio Emergents

Emerging markets rose sharply over the month, driven by China's solid rebound in the wake of optimism generated by Beijing's stimulus measures.

The PBOC cut interest rates, lowered reserve requirements ratio (RRR) and announced measures to support the property and equity markets, while indicating its willingness to do more on the fiscal front.

The fact that some of the measures announced are directly targeted at the market is a signal that the government is finally addressing economic issues and equity markets problems properly. The Central Bank is offering RMB 800 billion in subsidized loans to investors and companies themselves to buy equities.

In the wake of the coordinated announcements by the Chinese authorities, the Chinese equities markets rebounded strongly, making Chinese markets the best performing equity markets year-to-date.

In Latin America, Mexican markets rebounded slightly, while Brazil was down, penalized by a rise in central bank interest rates and continued weakness in agricultural commodity prices.

Against this backdrop, the fund delivered a positive performance over the month, in line with its reference indicator.

Our Chinese holdings made a significant contribution to performance, benefiting from the PBOC's support measures. Consumer discretionary stocks, such as VIPshop, JD.com, Anta Sports and Haier Smart Home, posted the best performances over the month.

In India, we benefited from the strong performance of bank Kotak Mahindra, as well as real estate company Nexus, operating shopping malls across the country.

Nevertheless, we were disappointed by the underperformance of South Korean markets, with Samsung Electronics not immune to this, worrying investors about its ability to meet its third-quarter targets.

Lastly, our portfolio of Latin American equities underperformed slightly over the period, without penalizing the fund's overall performance.

Emerging economies should benefit from long-term structural trends: artificial intelligence, relocation of production chains, new commodity cycles.

We welcome these major announcements by the Chinese government, which are very positive for the Chinese and emerging equities markets overall.

Although the Chinese government's recent announcements do not seem sufficient, on their own, to turn the Chinese economy around, this is a major turning point, as President Xi has shown that he is now putting the economy as a top priority.

However, at this stage, we feel it is still too early to change our medium- to long-term views on the Chinese economy. And we maintain our selective and cautious view given the global economic slowdown and the US presidential election.

Given our expectations of a political turnaround on the one hand, and the impossibility of “timing” such a change on the other, we have adopted a neutral stance on China, with an equal weight allocation, focused on stock picking opportunities. Our China exposure is around 25%.

We are closely monitoring each Chinese position and its valuation, our objective being to remain disciplined in position sizing. We are selectively trimming some positions that rebounded a lot, and where the valuation argument became less compelling. For other stocks, we are maintaining our positions.

We are maintaining a concentrated portfolio with balanced exposure, combining high-visibility quality stocks (Asian Tech, India) with companies in less attractive markets whose valuations are clearly attractive, especially when corporate governance gives us confidence (China, Brazil).