Ready for the next emerging markets super cycle

As part of an exclusive partnership, Citywire’s experts interviewed Xavier Hovasse and Naomi Waistell, co-Fund Managers of Carmignac’s Emerging Market equity strategies, to gain a deeper insight into their current market outlook and investment philosophy.

Emerging markets (EM) tend to divide opinion: they’re seen as either engines of global growth or volatile sideshows. For Carmignac, which has invested in EM for decades, renewed momentum is strengthening the long-term investment case. Waistell and Hovasse point to a reversal of fortunes that has historically led to periods of strong outperformance.

‘We’ve seen an encouraging resurgence in EMs this year, with the best ten months in fifteen years,’ said Waistell. ‘Part of that reflects investors recognising the intrinsic merits of EMs, but it’s also about the fading of US exceptionalism and the desire to diversify. The setup for EMs is at an important juncture. It’s been a long time since they last outperformed US markets – and when they do, they tend to do so powerfully.’

The managers believe that the current landscape is markedly different from the last EM super cycle in the early 2000s. At that time, China’s accession to the World Trade Organisation fuelled ‘trade change 1.0’ – a period when growth was dominated by mass exports of low-value goods to developed markets.

Today, rather than relying on external demand, many EMs are focused on self-sufficiency, trading more among themselves and building resilience to changes in global policy. Trade data already reflects what Waistell sees as a ‘paradigm shift’. Three decades ago, the US was the largest trading partner for around 80% of EMs. Today, that plaudit goes to China, with new hubs such as Vietnam, Mexico and India becoming increasingly influential. The share of EM-to-EM trade has more than doubled from around 20% to 50% over that period.

‘That self-sufficiency is not just a China story or confined to particular trade corridors or sectors,’ added Waistell. ‘EMs are increasingly able to drive their own growth from within.’

Source: Carmignac, Bloomberg, Citywire, October 2025.

The managers are careful not to anchor their outlook on any single political development. Trade tariffs, for example, may grab headlines but are less decisive than many assume. ‘Initially, it looked like Trump would focus on China, but his leverage was weaker than expected,’ said Hovasse. ‘Broad tariffs ended up hitting everyone – and when everyone is targeted, it’s almost as if no one is.’

Far from undermining EMs, the managers argue that US policy turbulence has reinforced their appeal. ‘EM supply chains aren’t being fundamentally disrupted,’ Hovasse continued. ‘The more likely outcome [of trade tariffs] is a tax on US consumers rather than a shock to global trade.’

Waistell sees an ironic twist: the US is starting to behave more like an EM than the EMs themselves. ‘There is political instability everywhere, but arguably more so in the US than anywhere else right now,’ she said. ‘Slower growth, higher debt, uncertain monetary policy, higher inflation and unpredictable political behaviour – none of this is fully reflected in valuations.’

By contrast, EMs combine structural growth with dynamism, offering risk premia that the managers view as disproportionately wide relative to the opportunity set. ‘They have higher growth, a huge population moving up the wealth curve and a high degree of entrepreneurialism,’ said Waistell. ‘EMs tend to leapfrog in their technology curves. There’s been a lot of narrowness in global capital markets in recent years, which doesn’t reflect where the innovation is happening.’

Carmignac’s long history in EM investing underpins the managers’ confidence in identifying and capturing these growth dynamics. ‘A lot of EM funds were set up a decade ago; our first EM strategy was launched in 1997 – almost three decades ago. EM investing is ingrained in Carmignac’s DNA,’ added Waistell.

Our EM conviction is built around four broad opportunity sets: China, Asian technology, Latin America and Southeast Asia, including India. Each has distinct drivers. ‘China retains the largest position in our universe and we’re slightly underweight after a strong rally year-to-date,’ Waistell explained.

‘In technology, we’re invested at various points of the chip supply chain. In Taiwan, opportunities are largely stock-specific, while the Korean government's “value-up” programme may foster a broader equity culture.’

‘In Brazil, valuations are uniquely cheap. We’ve leaned less on the quality growth companies typical of our strategy and more on bond proxies – high-quality utilities that are growing and can return capital to shareholders. And in Southeast Asia, we see strong structural growth opportunities.’

For Carmignac, a combination of structural opportunity, relative mispricing and market inefficiency create fertile ground for active investing. The managers blend top-down macro insights with bottom-up stock selection and alignment with the UN Sustainable Development Goals to identify resilient, long-term growth stories in EMs.

‘Some of our competitors think the only thing that matters is stock picking,’ said Hovasse. ‘Stock picking is important – it’s the source of more than half of the alpha of the strategy – but for us, it’s also very important to conduct in-depth macro analysis.’

‘The key variable in asset valuation is the cost of capital. We have a very good understanding of the country risk, the currency risk and the balance of payments in every country where we deploy capital.’

Beyond macro and stock analysis, the managers emphasise the importance of being insulated from market noise while undertaking regular research trips to gather on-the-ground insights. ‘Being able to see with your own eyes, look into the whites of management’s eyes and get that in-person assessment is absolutely critical to the long-term fundamental investing that we do,’ said Waistell. The result is a high conviction portfolio of typically 35-45 holdings, held for the long term.

‘A lot of fund managers have a fear of missing out,’ Hovasse added. ‘Ours is a concentrated portfolio of stocks that we know very well. When we travel, we spend most of our time deepening our understanding of the companies we own by talking to them, talking to their competitors, talking to their regulators, talking to other investors. Equally importantly, we have low portfolio turnover. Deep knowledge of our stocks allows us to size positions for maximum alpha, delivering for our investors asymmetric outcomes to target strong fund performance.’

Finding tomorrow’s leaders through disciplined stock selection and a clear sustainability focus.

EMs offer vast growth potential but come with inherent volatility, making discipline essential. Within our EM approach, the co-fund managers start by pinpointing resilient countries and sectors before selecting the businesses best positioned to prosper.

Quality, as defined by co-managers Naomi Waistell and Xavier Hovasse, spans both macro and company levels – from economies with healthy balance sheets to firms with capital-light models, robust cashflow and self-financing growth.

The co-fund managers share the investment themes they see as most compelling today, explain how sustainability is embedded in their process and discuss how they use a high active share to stay agile in fast-moving markets. The result is a high-conviction, sustainability-led strategy designed to capture tomorrow’s leaders today.

Over the past few years EMs have been on a volatile journey. Nevertheless, Carmignac Portfolio Emergents demonstrates a long term outperformance compared to its reference indicator¹.

Under the management of Xavier Hovasse since January 2015, the Fund has achieved a cumulative return of +113.3%, clearly ahead of its reference indicator¹ (+99.1%). It is worth noting that since Naomi Waistell joined as co-fund manager in May 2025, Carmignac Portfolio Emergents has delivered a +24.2% return, outperforming its reference indicator¹ (+20.2%).

As of 31 October 2025, the fund is up +27.2% year-to-date, compared with +19.2% for its reference indicator¹, demonstrating the resilience and efficiency of its conviction-driven investment process. Since Xavier Hovasse's tenure, the fund ranks in the first quartile of Morningstar’s Global Emerging Markets Equity category, outperforming 86% of its peers in absolute returns and 80% on risk-adjusted metrics such as the Information Ratio.

The fund’s strong historic performance is supported by its asymmetric return profile, characterised by higher upside capture and controlled downside, allowing it to preserve capital during corrections and outperform in rising markets. This positive asymmetry stems from disciplined stock selection and thoughtful country and sector allocation, both of which have been steady contributors to alpha generation. Over time, these combined factors have enabled Carmignac Portfolio Emergents to deliver consistent, risk-adjusted performance and sustainable value creation for its investors.

Our perspective and convictions on EM
After years lagging developed markets, EM equities are showing signs of structural revival. We continue to see multiple tailwinds for a sustained EM rally — a softer USD, rate cuts, improving corporate governance and industrial policies, clearer trade dynamics and resilient earnings growth.

With the MSCI EM index nearing 15x current Price earnings (P/E) ratio, close to their historic highs, we’re staying disciplined — taking profits on outperformers like Eletrobras, Elite Materials, and Vipshop, and adding to high-conviction stocks where we see more upside potential such as SK Hynix, Didi, and Prosus (as a proxy to Tencent).

So far, the strong rebound in emerging markets has largely been driven by beta, as investors re-entered the asset class amid improving macro conditions. However, as the cycle matures, the next phase of performance is likely to be driven by alpha — making selectivity and active management essential.

Unlike passive strategies that mechanically allocate capital based on market capitalisation, active, conviction-driven approaches allow investors to identify undervalued opportunities and avoid concentration risk in overvalued names. Passive EM indices tend to overweight stocks that have already performed strongly — often trading at high multiples with limited upside — while underweighting emerging leaders of tomorrow.

At Carmignac, we manage exposure actively and with discipline: taking profits when valuations become stretched and reinforcing positions in companies offering the most attractive upside potential. Our focus is on long-term, sustainable alpha generation through rigorous bottom-up stock selection, supported by macroeconomic and thematic insight.

Passive strategies often include state-owned enterprises whose objectives may not always align with minority shareholders or sustainable value creation. Our active process enables us to avoid these governance risks and focus on companies with transparent management, solid balance sheets, and strong ESG standards, which we believe are key drivers of long-term outperformance.

As the market transitions from beta-driven gains to alpha-driven opportunities, Carmignac Portfolio Emergents stands out as an active, conviction-led strategy built to capture the next wave of growth — selectively, and with a clear focus on sustainable long-term value creation for investors.