Carmignac Portfolio Emergents: Letter from the Fund Managers - Q2 2026

During the second quarter of 2026, Carmignac Portfolio Emergents gained 29.9%, compared with a gain of 25.0% for its reference indicator. Since the beginning of the year, the Fund has returned 32.7%, versus 27.2% for its benchmark, representing an outperformance of 5.5%.

It is also worth highlighting that emerging market equities have significantly outperformed developed markets since the start of the year, by more than 14%⁴, in line with the scenario we predicted at the beginning of the year. This marks the second consecutive year of emerging market outperformance.

The strong performance of emerging markets since the beginning of 2025 has been driven largely by the rapid expansion of artificial intelligence (AI). Two major events acted as powerful catalysts for the asset class. The first was the "DeepSeek moment" in January 2025, which demonstrated China's ability to compete with leading US companies in the field of large language models. The second was the growing recognition that many of the primary beneficiaries of the AI revolution are located in North Asia.

In many ways, this new technological cycle marks the return of tangible assets over intangible ones. Investors have increasingly recognised that companies designing and manufacturing the critical infrastructure underpinning AI are likely to capture a greater share of value creation than those focused solely on software applications and services. This represents a notable shift from the internet revolution, when platforms and consumer brands such as Facebook or Instagram captured a significant proportion of market value.

Today, hardware sits at the centre of the AI ecosystem. Nvidia's graphics processing units, for example, are all manufactured by Taiwan Semiconductor Manufacturing Company (TSMC) (9.8% of the Fund's net assets as of 30 June 2026). High Bandwidth Memory (HBM), an essential component powering Nvidia's most advanced chips, is produced almost exclusively by the Korean companies SK Hynix and Samsung Electronics. Alongside these leaders, a broad ecosystem of Taiwanese companies specialising in semiconductor equipment, advanced components and manufacturing processes have become deeply embedded within the global AI value chain. As a result, Asia offers investors multiple ways to gain exposure to the potential winners of the AI revolution, extending well beyond software and internet businesses.

Against this backdrop, the Fund's performance was largely driven by our exposure to the Korean memory sector through three core holdings: Samsung Electronics, SK Hynix and its parent company, SK Square.

SK Square owns a 20.5% stake in SK Hynix and has publicly committed to reducing the holding company discount that has historically weighed on its valuation. This strategy has proved highly successful. Since the beginning of the year, SK Square has outperformed SK Hynix, allowing the fund to benefit from the appreciation of SK Hynix both directly through our investment in the company and indirectly through our holding in its parent company.

Towards the end of the second quarter, however, we took significant profits in both SK Hynix and SK Square, notably following the announcement of SK Hynix's planned listing on the New York Stock Exchange. We believe this dual listing should contribute to a gradual re-rating of the company by narrowing the valuation gap with its US peer Micron, which currently trades at approximately a 50% valuation premium to its Korean counterparts.

During the quarter, we added four new positions to the portfolio, reflecting both our extensive fundamental research and our recent research trips across Asia. These include the Chinese company Shenzhen Han's CNC, as well as the Taiwanese companies Grand Process Technology (GPTC), BizLink and Universal Microwave Technology (UMT). These investments reflect our objective of identifying, at an early stage, the companies we believe are best positioned to benefit from the structural trends reshaping Asia's technology ecosystem.

Shenzhen Han's CNC is a leading Chinese manufacturer of high-precision computer numerical control (CNC) machine tools, serving the electronics, automotive, aerospace and industrial equipment industries. We believe the company is well positioned to benefit from the continued upgrading of China's manufacturing base and the growing demand for high-end production equipment.

GPTC is a Taiwanese leader in wet process equipment for the semiconductor industry. Based in Hsinchu, at the heart of TSMC's ecosystem, the company designs wafer cleaning, chemical etching and surface treatment systems used in the production of advanced semiconductors, advanced packaging and optoelectronics.

BizLink is a global leader in interconnect solutions, specialising in the design and manufacture of cables, connectors, wiring harnesses and connectivity solutions for data centres, semiconductor equipment, electric vehicles, industrial applications and the medical sector. We believe the company is ideally positioned to benefit from the rapid expansion of next-generation data centres and AI-related infrastructure.

Finally, UMT is a Taiwanese specialist in radio frequency (RF) and microwave components and modules used in telecommunications infrastructure, wireless networks, defence systems and satellite applications.

We also increased our position in the Mexican consumer company Tiendas BBB, which we initiated during the first quarter. We took advantage of a large secondary share placement in May to increase our investment at what we believe were particularly attractive valuation levels.

Our exposure to Latin America was reduced during the quarter and at the quarter end represents 13.0% of the portfolio (versus 6.4% for the reference indicator). This reflects two factors. Firstly, the outstanding performance of the Taiwanese and Korean markets mechanically reduced the relative weight of our holdings in other regions. Secondly, we have adopted a more cautious stance ahead of Brazil's presidential election in October and against the backdrop of ongoing negotiations between Mexico, the United States and Canada regarding the renewal of the USMCA trade agreement.

We believe emerging markets have entered a new multi-year cycle, supported by stronger fundamentals, earnings growth that continues to outpace developed markets, and valuations that still trade at a 43% discount to US equities⁵. Despite the strong rally since the beginning of the year, the asset class continues to offer significant re-rating potential, particularly as global investors remain structurally underallocated to emerging markets.

Beyond the cyclical backdrop, emerging markets continue to benefit from multiple structural growth drivers. Asia remains at the centre of global innovation, powered by AI, semiconductors, automation and the broader industrial revolution. At the same time, Latin America continues to benefit from favourable commodity exposure and resilient macroeconomic fundamentals. We believe this diversity of growth engines is one of the asset class's greatest strengths.

We remain particularly constructive on the Asian AI ecosystem. However, following the exceptional performance of memory-related stocks, we have adopted a more selective approach. While maintaining meaningful exposure to this long-term structural theme, we have reduced certain positions to preserve valuation discipline and actively manage portfolio risk. We continue to favour companies positioned to benefit from the next phase of the AI cycle, including technology infrastructure, connectivity, power management and industrial equipment.

We also continue to diversify our sources of alpha by increasing our exposure to attractive domestic opportunities in Mexico, alongside high-quality industrial leaders in China.

Finally, we believe the current environment will remain characterised by significant dispersion across countries, sectors and individual companies. In such a market, stock selection, valuation discipline and active portfolio management remain the primary drivers of alpha generation. Our investment philosophy remains unchanged: to build a balanced portfolio around multiple complementary growth engines while investing in companies capable of delivering sustainable earnings growth, strong cash flow generation and long-term value creation for shareholders.