Edouard Carmignac's letter

Dear investors,

More than often, History’s careful reading can help with foreshadowing. Alarming and painful as it might sound, there is a hopeful silver lining to the conflict escalation in the Middle East.

Iran itself is the subject of a major misunderstanding. Even if many Iranians no longer consider themselves ‘exclusively’ Persian, they are not Arabs. Already, 500 years BC, Darius dominated the Middle East, not only with his armies but also brilliant civilisation, to which the remains of Persepolis bear witness. Persia's setbacks over the centuries with its neighbours, notably the Turks, have not hampered its cultural refinement or its scientific capabilities, as illustrated by its advances in nuclear energy or the development of fearsome drones. However, the ambition to control, and even dominate, the Arab world endures. And the use of radical Islamism has proved a powerful weapon. Its effectiveness has been enhanced by two major opportunities. First, the existence of Isreal as an ideal scapegoat. Secondly, by the profound inequalities created by the drawing of the ill-fated Sykes-Picot Line in 1916, which diverts most of the Middle East's oil resources away from its most populous regions.

In this respect, the shocking Hamas raid on 7 October was no coincidence. A plan to support the creation of a Palestinian state, primarily financed by Saudi Arabia, was in the process of being announced. If the Israeli counter-offensive, bolstered by American air intervention, does not put an end to the Iranian regime, it should at least delay the development of a nuclear weapon and above all, dissuade Iran from further destabilising the Middle East. Wishful from our part? Saudi Arabia’s plan to create a Palestinian state could be revived.

And what about markets? Appeasement in the Middle East is reducing the premium on risky assets and, unsurprisingly, oil. This development is particularly favourable for Europe, whose growth prospects have been further improved by the recent frontrunning of the substantial German economic stimulus plan recently instigated by Friedrich Merz. The fall in the oil price, accompanied by a significant easing of global inflationary pressures, incentivises central banks to look ahead with confidence as they push for more accommodative monetary policies. The major fly in the ointment could be Trump's tariff war threats, which as anticipated in my previous letter, seem to mollify by the day.

Nevertheless, we remain wary of US assets. We maintain low dollar exposure in our portfolios and an underweight position in US bonds and equities, with the notable exception of technology stocks at the heart of the artificial intelligence wave. Dollar weakening and falling interest rates should help boost the value of emerging market assets which not only offer attractive investment opportunities but also remain undervalued.

Wishing you a peaceful and prosperous summer. With my best regards,