Carmignac Portfolio Emergents

Emerging markets started the year on a positive note in January, supported by a solid rally in Latin American markets, despite the sell-off in AI names following the DeepSeek news.

In China, economic data came in slightly lower in January vs. December for both the NBS manufacturing PMI (49.1 for January vs. 50.1 for December) and the NBS non-manufacturing PMI (50.2 for January vs. 52.2 for December). At the end of the period, Chinese markets were closed for the Lunar New Year.

The start of D. Trump's second term as President of the United States brought a wind of uncertainty to the markets. At the end of the period, President Trump announced tariffs of 25% on Mexico and 25% on Canada, as well as additional tariffs of 10% on Chinese goods.

Finally, Latin American markets ended the month higher, with the Brazilian market recovering after the strong correction in 2024. In contrast, Indian markets sold off on profit-taking after 3 years of positive performance.

In this context, the fund delivered a positive performance, outperforming its reference indicator.

The primary driver of this good performance was Taiwan Semiconductor, the global leader in the foundry industry, which reported a significant increase in fourth-quarter results and continues to benefit from strong demand for its AI chips. Additionally, South Korean company SK Hynix posted good results, further supporting our performance.

Despite the disruption in stock prices of companies operating in artificial intelligence due to the DeepSeek announcement, our holdings still ended the month on a positive note.

Our Latin American portfolio also contributed positively to the overall performance. Notably, our Brazilian holdings Eletrobras and Equatorial Energia, along with our investment in the Mexican bank Grupo Banorte, boosted the fund's performance.

After a year in 2024 marked by the underperformance of emerging markets compared to US markets, we remain constructive on Emerging Equities, as we believe that current valuations reflect a pessimistic scenario.

We are in the view that the economic decoupling between the US and China will not have the negative consequences expected by the market. China's exports to the US in fact represent no more than 13% of total Chinese exports.

On the other hand, Donald Trump's protectionist policies are pushing us to adopt a measured allocation to China, with a slight underweight positioning relative to our reference indicator. Our Chinese portfolio is composed of domestic consumer companies and should therefore not be directed impacted by the potential rise in US tariffs.

We are maintaining a significant allocation to India, where the long-term outlook remains promising. However, tight valuations and technical factors – such as the significant capital inflows in recent years – require a more selective approach.

We are maintaining a significant exposure to the artificial intelligence theme. Over the month, we continued to strengthen our position in SK Hynix, the world leader in the manufacture of sophisticated HBM (High Bandwidth Memory) memory, which receives 100% of its orders from Nvidia. On the contrary, we reduced our stake in Samsung, which has fallen behind Hynix.

After the sharp correction in 2024, we remain constructive on our Latin American portfolio and we are maintaining our positions, particularly in Brazil. Despite the rebound in January, we believe that our Brazilian stocks are attractively valued, and notably our investments in power utility companies.

Over the month, we reduced our position in the Argentine bank Galicia on profit taking, after the stock's strong performance since our investment in the last quarter of 2024.