Carmignac Portfolio Emerging Patrimoine

The Federal Reserve delivered a more accommodating message than expected at its September meeting, cutting its key rate by -0.5%.

The Indonesian and South African central banks followed the Federal Reserve's lead, announcing rate cuts of 25 basis points, while the Brazilian central bank raised its key rate by 25 basis points.

EM Equities rose sharply over the month, driven by China's solid rebound in the wake of optimism over 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.

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

The weakness of the US dollar benefited emerging currencies, which appreciated over the month, particularly Latin American and Asian currencies.

Against this backdrop, our strategy delivered a positive performance over the period, slightly underperforming its reference indicator.

Our equities portfolio made a significant contribution to performance, boosted by China's recovery, which benefited Chinese consumer stocks such as Vipshop, Beike and JD.com.

Our bond component also made a positive contribution over the month. We benefited from our positions in Mexican, Indonesian and South African local bonds.

On the credit side, our investments in the external debt of emerging countries made a positive contribution, benefiting from our allocation to Mexican quasi-sovereign Pemex, and our positions in Egyptian and Argentinean debt. On the other hand, our credit market hedges weighed slightly on performance.

Finally, on the currency front, we benefited from our exposure to Latin American currencies (Brazilian real, Chilean peso) and Asian currencies (Malaysian ringgit). However, we suffered from our short positions in the Chinese yuan, which we reduced over the period.

We remain very constructive on emerging market assets in a context marked by the Fed easing cycle and the Chinese government's major stimulus plan.

We welcome these major announcements by the Chinese government, which are very positive for the Chinese and emerging markets as a whole. 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.

Against this backdrop of a soft landing and inflation continuing its gradual decline, we are maintaining a relatively high level of exposure to equities (33%) and interest rates (modified duration of 400 basis points) at the end of the period.

On the bond side, we have increased the portfolio's modified duration in emerging local debt, by strengthening our positions in Brazilian local rates, as the markets are still anticipating a large number of rate hikes, which we believe to be exaggerated.

On credit, we maintain our cautious bias due to high valuations, and maintain a substantial level of hedging on Itraxx Xover to protect the portfolio from the risk of widening credit spreads.

On equities, we maintain a neutral exposure to China (in line with our reference indicator). 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.

Finally, we maintain a selective exposure to emerging currencies, with a preference for Latin American currencies and those linked to commodities, which should benefit from the Chinese stimulus. These include the Brazilian real, the Chilean peso, the Indonesian rupiah and the South African rand.