Carmignac Portfolio Emergents: Letter from the Fund Managers - Q1 2026

During the first quarter of 2026, Carmignac Portfolio Emergents F EUR Acc delivered a positive performance of +2.14%, outperforming its reference indicator, which rose +1.76%.

The first quarter of 2026 was characterised by a clear inflection point in risk perception, with the first two months displaying a strong continuation of 2025’s trends and momentum for emerging markets, giving way to a far more volatile and geopolitically driven environment during March. Early in the quarter, EM equities reached new highs—supported by ongoing strength in North Asian technology, robust commodity performance and continued earnings upgrades—but this trajectory reversed sharply into the quarter end as the escalation of the Iran conflict became the dominant market driver.

The outbreak and subsequent escalation of the Iran war triggered a sharp repricing across asset classes, most notably through a surge in oil prices, which rose above $100 per barrel, alongside a strengthening US dollar driven by safe-haven flows. The knock-on effect has been a stagflationary impulse globally and led to a reversal of some of the earlier risk-on positioning. MSCI EM declining by more than 13% from its peak to trough following the onset of the conflict, though is already gaining back much of these losses in early Q2, as we write.

The repercussion of the conflict across emerging markets has been highly uneven, reinforcing the heterogeneity of the asset class. Oil-importing economies, particularly across South and Southeast Asia, have been most exposed to the shock. India has been notably impacted, experiencing one of its sharpest equity drawdowns in recent years as rising energy costs, currency pressure and external vulnerabilities came into focus and added to existing pressure on earnings growth. Governments across the region have been forced to implement emergency measures, including fuel subsidies, export restrictions and demand rationing, in an effort to contain inflationary pressures and preserve macro stability.

By contrast, commodity-exporting regions—particularly parts of Latin America and Saudi Arabia —have been relative beneficiaries of higher energy prices. Brazil and other Latin American markets have been supported by improved terms of trade, though the long-awaited first policy rate cut in Brazil was shallower than previously anticipated, at 25bps, due to the uncertainty. Flows into Brazil have been notably strong, and the index continues to make new highs as recent electoral polls have favoured a win for the more right wing candidate, Flavio Bolsonaro.

North Asian markets have demonstrated relative resilience despite their dependence on imported energy. South Korea and Taiwan have continued to benefit from structural tailwinds in semiconductors and AI-related demand, with strong cash flow generation and earnings visibility providing support even amid elevated volatility. China and Hong Kong equities have also held up comparatively well, supported by policy flexibility, improving trade data and still-attractive valuations, despite ongoing structural challenges in the domestic economy.

Beyond geopolitics, market dynamics have also reflected a transition away from the narrow, liquidity-driven rally of 2025. While AI and technology remain key structural themes, the quarter was characterised by increased dispersion across sectors and regions, alongside episodes of sharp factor rotations—most notably the unwind of crowded positions in technology and growth equities during periods of heightened risk aversion.

Against this backdrop, the fund slightly outperformed the reference indicator by 38bps, delivering an absolute return of +2.14% over the first quarter, versus +1.76% for the reference indicator (all in EUR terms).

As is typical for the fund, performance over the quarter was predominantly driven by strong stock selection.

Our technology holdings were the key area of alpha for the fund during the period. Accordingly, Taiwan was by far the largest contributor to performance on a country basis, owing to our exposure to a few high conviction names across the AI hardware supply chain. These positions underline our strategic approach to AI investment opportunities of looking beyond the index heavyweights, in the pursuit of the best investments across the value chain. South Korea was also a positive contributor as SK Hynix continued to benefit from strength in memory pricing and ongoing earnings upgrades. Hyundai Motor also delivered strong performance as the market began to recognise the value of its humanoid robotics subsidiary, Boston Dynamics.

Latin America also contributed positively to performance, with Axia Energia and Grupo Financiero Banorte among the leading contributors, supported by stronger power price dynamics in Brazil and better overall investor perception of the region’s relative and absolute investment opportunity.

Whilst our performance in China was a slight negative, CATL bucked this trend. We admire the company for its strategic position at the confluence of three key trends: economic electrification, energy storage (for AI power storage) and energy sovereignty, which has become increasingly pertinent.

Detractors for the quarter were relatively modest and concentrated into two key areas: India and platform businesses. The fall in the Indian market was almost indiscriminate, leading to pressure from stock contributions in some of our financial and consumer holdings. However, the fund is 3% underweight India versus its reference indicator and both asset allocation and stock selection were positive on a relative basis.

The area which caused most concern during the quarter was platform businesses – companies which benefitted in the internet era from their asset-light model which leveraged strong network effects and traffic aggregation leadership to propel growth and command high multiples. These sorts of business models are now coming under question in the AI era which instead gives primacy to R&D intense, IP-led businesses and it is not yet clear to what extent platform across ecommerce, ride hailing, online travel and others may be disrupted. As a consequence, our holdings in the likes of Mercado Libre, Sea, Didi and Tencent underperformed. We continue to assess the risks, as well as the benefits of AI across the portfolio.

We made four new purchases and exited five holdings during the period.

We initiated a position in Lotes, a key Taiwanese supplier of CPU sockets, connectors and cooling solutions, reflecting our strong conviction in its role within the electronics supply chain.

Additionally, we started a small position in Voltronic Power, a Taiwanese manufacturer of uninterruptible power supply systems, which we see as a critical enabler of power stability in increasingly electrified and data-intensive economies.

Elsewhere, we added BBB Foods, a Mexican hard-discount retailer, following a sharp share price correction, allowing entry into a high-quality operator with strong growth potential.

In China, we initiated a position in Tencent Music, perhaps too early as AI-risk has continued to weigh on the name, but we saw an overreaction to short-term competitive and regulatory concerns despite resilient fundamentals, attractive valuation and a strong buyback program.

In terms of sales, we streamlined the portfolio by exiting consumer names Dabur and Brainbees in India, where we felt business quality and growth did not justify valuations, particularly given rising input cost pressures. We also exited Haier Smart Home, where upside appeared limited. In addition, we disposed of smaller, non-core positions including Five Star and Hapvida, improving overall portfolio focus.

Through the quarter we have continued to exhibit discipline in the management of our overall technology, and particularly, memory, positioning. The key change has been to rotate part of our strongly performing SK Hynix position into SK Square, exploiting a wide valuation divergence for exposure to the same underlying asset. This positioning reflects continued conviction in the memory cycle, supported by strong pricing and cash flow dynamics, while remaining mindful of risk. We note the potential for Hynix’s planned ADR listing, which could help close the valuation gap with global peers.

Finally, we materially reduced exposure to Didi following concerns around capital allocation and profitability.

At the start of the year, the case for emerging markets seemed almost unblemished: a supportive global cycle, a weakening US dollar, constructive commodity dynamics and strong domestic fundamentals offsetting China’s deflationary drag. The escalation of the Iran conflict has introduced a stagflationary shock—complicating the outlook.

However, Emerging markets fundamentals remain strong: high real interest rates with room to compress, broadly contained inflation, healthier fiscal and external balances and elevated foreign exchange reserves across many economies. This provides a degree of policy flexibility and macro resilience that has been largely absent in previous cycles. At the same time, earnings growth remains structurally stronger than in developed markets, supported by improving margins, better capital discipline and more consistent returns on capital. Valuations, while no longer distressed, continue to reflect a meaningful discount to developed markets despite this improvement in fundamentals.
This new context has meant that the broad, synchronised EM rally has given way to a more fragmented environment where country-level outcomes are increasingly determined by energy exposure, external resilience and earnings visibility. At the same time, the structural drivers of the asset class remain firmly in place. The role of emerging markets in global technology supply chains continues to underpin earnings resilience, the asset class is increasingly supported by domestic demand, deeper local capital markets and we expect to see renewed dollar weakness as a structural feature, given the damage to the hegemonic position of American caused by their actions in the Middle East. These shifts are likely to be gradual but important for emerging markets, reducing external reliance and improving the quality and sustainability of earnings over time.

Of course, the geopolitical outlook from here remains highly uncertain, given the fragile ceasefire agreement now in place and it’s therefore likely that a geopolitical risk premium in energy markets will continue to play a role and impact growth and inflation dynamics, globally. This is likely to result in continued volatility, but also greater dispersion across countries, sectors and stocks, which are us as active stock-pickers can be an advantageous environment.
We continue to see significant potential for downside risk under some scenarios, though also acknowledge that the market can bounce hard on easy rhetoric. But without significant progress towards re-opening the Strait of Hormuz that doesn’t resolve the fundamental issue and would likely be unsustainable. We have therefore increased our cash position, allowing us to deploy capital opportunistically amid increased volatility. Our largest country overweights continue to be in Latam, which to date have served us well.

For emerging markets overall, the combination of superior earnings growth, improved macro resilience and still-discounted valuations remains compelling in a global context of moderating growth. However, returns will be increasingly dependent on identifying businesses with pricing power, balance sheet strength and clear exposure to structural growth themes. Our positioning reflects this: focused on companies with durable earnings profiles, particularly within technology, energy and industrial transformation, while beginning to explore a potential shift towards “tangible asset” beneficiaries, reflecting a changing market regime. All the while, maintaining discipline on valuation and diversification.