Carmignac P. EM Debt

ASIA

• In China, the recovery in consumer spending turned out to be more timid than expected, as evidenced by the Caixin Services PMI (54.5 in April vs. 56.4 in March). We have witnessed a sharp decline sign of a major slowdown in global demand for goods (-7.5% YoY vs -1.8% expected).

EMEA

• In Turkey, after two decades in power, incumbent President Recep Tayyip Erdogan was re-elected President after a second round of voting, leading to high volatility on the bond and foreign exchange markets.

• In Hungary, the National Bank became the first central bank in Central Europe to ease monetary policy with a 100 basis point cut, even though its benchmark rate remains by far the highest in the region.

LATAM

• In Brazil, the publication of positive macroeconomic indicators such as inflation (3.94% in April vs. 4.65% in March) and GDP growth for the first quarter of 2023 (1.9% vs. -0.1% previously) impacted positively the markets.

As of 31/05/2023

Portfolio Movements

• Local debt strategy: Brazil (Reduced)

• External debt strategy: Egypt, Tunisia (Reduced)

• FX stratregy: EUR, USD, CZK, BRL (Increased); KRW, JPY (Reduced)

In the current context, we still mainly favour the following investment themes:

• With the recession risk approaching we are constructive on local rates, as developed markets rates start to incorporate it, hence we should see less pressure on inflation in Emerging markets. We think that the countries that have hiked the most and are showing signs of “hike-fatigue” (mainly Poland, Czech, Hungary) will be the most willing to change the policy messaging from a hawkish tilt to a dovish tilt.

• Manufacturing countries that will benefit from the "nearshoring" phenomenon, over the long term, i.e. the potential repatriation of production lines to closer and more stable countries (Mexico, Hungary, Poland, Romania, Czech Republic, etc.).