Carmignac Portfolio Emergents: Letter from the fund manager

In 2024, Carmignac Portfolio Emergents posted a performance of +5.5% (F EUR Acc share class - ISIN LU0992626480), compared with +14.7% for its reference indicator (MSCI Emerging Markets Index USD, net dividends reinvested)¹.

2024 was a bad year for the Emerging Equities asset class, which underperformed developed markets for the fourth consecutive year.

Against this backdrop, the underperformance of the Fund vs. its indicator is mainly due to 3 factors:

• Exposure to Latin America
• Positioning in China
• The disappointing performance of Samsung Electronics in Korea

The fund suffered from its exposure to Latin America (20% of the fund's net assets as of 31/12/2024), particularly Brazil and Mexico. After the invasion of Ukraine in early 2022, Brazilian and Mexican assets performed very well for two years. In 2024, however, they were penalized by political issues, which are often the Achilles' heel of countries in this region. After the sell-off, our Brazilian assets are very attractively valued, like our investments in electricity concessions, which offer yields of up to 21% in Brazilian real, even though inflation is around 5%².

As for Mexico, we were penalized by the weakness of the bank Grupo Banorte, as well as the industrial property company Vesta, both of which suffered from the sell-off of Mexican markets following the judicial reform adopted by the new president Claudia Sheinbam, and the uncertainties surrounding the US elections and their impact on the Mexican economy. However, Claudia Sheibaum has shown her willingness to work with the US administration to preserve the economic interests of both countries, which we believe will help the rebound of Mexican assets given that the economy has decent fundamentals.

As for China, although the Chinese markets performed relatively well in 2024, our stock selection contributed negatively to performance. Indeed, in 2024, the market was driven upwards by index heavyweights Tencent, Meituan and state-owned banks. We avoid leaders with dominant market shares such as Tencent or Meituan, due to the Chinese government's stated desire to promote competition by avoiding dominant positions. And we exclude all state-owned companies whose corporate governance leads to conflicts of interest which, in the long run, are usually unfavorable to minority investors. It should be noted that our stock selection in China has been a major driver of performance over the past 5 years (contribution of 57% vs -9% for the Chinese stocks of the index)³ and that 2024 is therefore an exception. After the strong rebound of Chinese markets following the economic stimulus announcements in October 2024, we reduced our Chinese exposure to 23.4% of the Fund, focusing on our strongest convictions.

Finally, the Fund suffered from the disappointing performance of Samsung Electronics. The stock declined primarily due to the weakness of the DRAM / NAND cycle⁴ and also due to the fact that its competitor SK Hynix, gained market share thanks to its lead in the sophisticated memory chip manufacturing (HBM products), further diminishing Samsung's share value despite its strong financial performance earlier in the year. We were also disappointed by our holdings in Hyundai Motor and LG Chem during the period.

However, worth highlighting, the solid rebound of our Taiwanese technology stocks (TSMC, Elite Material) and our Indian positions (ICICI Lombard, Kotak) recorded excellent performances, underpinning the Fund's performance in 2024.

After 2024, a year marked by the underperformance of emerging markets relative to US markets, we remain constructive on EM equities because we believe current valuations reflect a very pessimistic scenario, which we do not adhere to. We believe 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 account for ~13% of total Chinese exports. China's exports to the US account for no more than 13% of total Chinese exports. And every year, China moves a little closer to total autonomy in all areas, including the strategic field of high technology.

In China, after having an in-line exposure over the whole year, we trimmed aggressively in mid-October after the big rally that happened after the announcements of stimulus. We maintain a measured allocation to China with an underweight positioning versus our reference indicator. We are maintaining a significant allocation to India, where the long-term outlook remains promising. However, stretched valuations and technical factors call for a more selective approach.

We continue to have significant exposure to the AI theme, and we increased our exposure to this theme with the addition of the world leading Korean semiconductor company SK Hynix, specialized in manufacturing the most sophisticated memory chips.

After a difficult 2024 marked by political problems, we remain constructive on our Latin America. We believe that Brazilian assets are very attractively valued, like our investments in electricity concessions (Eletrobras), which offer yields of up to 21% in Brazilian real. As for Mexico, the markets suffered from fears over the judicial reform carried out by the new president Claudia Sheinbaum and then by the election of Trump, But Claudia Sheibaum has recently shown a willingness to work with the US administration to preserve the economic interests of both countries, which gives us cause for optimism for 2025.

More generally, we are maintaining a concentrated portfolio with balanced exposure, combining quality, high-visibility stocks (Asian tech stocks, India) with companies trading at very attractive valuations (China, Brazil).