Carmignac Portfolio EM Debt

• Strong US data supported the markets. Second-quarter GDP rebounded more than expected to +3.0%, while core PCE inflation rose by +0.3% month-on-month.• The US Congress approved the Trump administration's "One Big Beautiful Bill" budget plan. This costly tax reform is expected to push the US annual deficit to 7% of GDP over the next decade. The introduction of customs duties is intended to partially offset this additional cost, particularly following the signing of trade agreements in July with several Asian countries and eurozone members.
• At the same time, the US Federal Reserve kept rates unchanged at 4.25–4.50% for the fifth consecutive meeting, reaffirming its wait-and-see approach and showing no urgency to implement further rate cuts.
• Rates rose in July, reflecting the resilient growth outlook on both sides of the Atlantic. The US 10-year yield increased by 15bp, while its German counterpart rose by 9bp.
• In emerging markets, central banks continued cutting rates in July, particularly in Chile, Mexico, South Africa, and Indonesia, against a backdrop of moderate inflation and a desire to support growth. Conversely, Brazil and Colombia kept their key rates unchanged at 15% and 9.25%, respectively, adopting a cautious stance in light of heightened external risks (notably new US tariffs).
• July marked the return of US exceptionalism, which had been weakened during much of the first half of the year. A successful trade policy, strong economic data, and robust corporate earnings enabled the dollar to post its best monthly gain since 2022. In emerging markets, a reversal occurred: EM currencies depreciated against the US dollar but appreciated against the euro.

• The fund posted a positive performance during the month, although it underperformed its reference indicator.• The portfolio benefited from the strong performance of its credit selection, particularly in the finance and energy sectors, as well as from its investments in emerging market debt denominated in hard currencies (Mexico, Ivory Coast, Romania). However, this contribution was slightly offset by the implementation of hedges designed to reduce exposure in a context of tightening credit spreads.
• On the other hand, our local fixed income strategies weighed on performance. The fund was affected by its long positions in Hungarian and Brazilian rates but benefited from its exposure to Polish and Indonesian debt.
• In terms of currencies, the fund benefited from the appreciation of EM currencies against the euro (particularly the Mexican peso and Indonesian rupiah) and the strengthening of the US dollar at the end of the period, which contributed positively to performance.

• In an environment marked by tariff uncertainty, geopolitical tensions, and fiscal risks in certain countries, we expect major central banks in both developed and emerging markets to maintain accommodative monetary policies. We are therefore maintaining a high modified duration of approximately 650 basis points.• In terms of local rates, we favour countries offering attractive real yields, such as Brazil, South Africa, and certain Eastern European markets like Poland and Hungary. We are also maintaining a long position in US rates, anticipating that the Fed will resume rate cuts in response to a softening labour market.
• In credit, we maintain diversified exposure to emerging market debt in hard currencies (Mexico, Colombia, Ivory Coast, Romania), which should benefit from attractive yields and favourable idiosyncratic factors in a moderately weak dollar environment.
• During the month, we strengthened our external debt positions while marginally reducing exposure to local debt in Mexico and Indonesia.
• In private debt, although we are maintaining our positions in energy and financial sector issues, we remain cautious due to high valuations. We have therefore maintained a significant level of hedging via the iTraxx Xover to protect the portfolio from potential spread widening.
• Finally, in currencies, we increased our exposure to EM currencies, particularly in Latin America (Chilean peso, Brazilian real), as well as commodity-linked currencies such as the South African rand and Indonesian rupiah.