Latam equities lead global returns as investors seek low valuations and strong currency carry trades
Latin American equities have become the top-performing stock market group this year, with investors paying just over $9 for every $1 in earnings—compared to over $19 in developed markets—according to Reuters.
Brazil and Mexico have emerged as central markets for global investors seeking yield, value, and diversification amid ongoing geopolitical tensions and a shifting global macroeconomic landscape.
Both countries’ stock markets are trading near record highs, with valuations described as low. Sovereign bonds across the region offer attractive yields, supported by softening monetary policy.
Brazil’s real, backed by a 14.75 percent benchmark rate, has appreciated 9 percent against the US dollar in 2025.
The broader Latin America currency index is up nearly 15 percent, recently hitting a 14-year high.
“Price-to-earnings multiples in Latam are low now even when compared with its own historical average,” said Leonard Linnet, head of equities at Itau BBA.
“Brazil is not only cheaper than China and India, it is trading at a 23 percent discount from (itself).”
Linnet added that “the Latam story is easier to tell now as stocks are cheap and there is a lack of options in emerging markets.”
He pointed to China’s involvement in trade disputes, India’s relatively expensive valuations and tensions with Pakistan, and investor avoidance of Russia.
Netherlands-based Robeco has increased its allocation to Latin America, particularly in Mexico, Brazil and Chile.
Wim-Hein Pals, head of Robeco’s emerging markets team, stated that the firm is overweight Latin America, while holding a neutral stance on China and underweight on India.
Despite the positive momentum, some uncertainty remains about whether material capital flows will shift into the region.
Graham Stock, senior emerging market strategist at RBC Global Asset Management, said that long-term shifts away from the US remain constrained.
“You could always see short-term trades that are dollar-bearish, and you could see some allocation into Latin American currencies, because they're high yielding,” he said, adding that the carry is attractive and likely contributed to recent movements.
Brazil and Mexico hold the largest regional weights in global stock and bond benchmarks.
Brazil alone comprises 60 percent of the MSCI Latam Index and just under 5 percent of the broader MSCI Emerging Markets Index.
According to Reuters, many global portfolios remain underexposed to the region, despite attractive returns and lower valuations.
Argentina has also seen increased interest after easing capital controls in mid-April.
Its dollar debt has returned more than 100 percent at the index level since Argentine President Javier Milei’s election in late 2023, while the local stock index (.MERV) rose 173 percent last year.
However, the market remains excluded from major benchmarks.
“We couldn't buy in on Argentina for all practical purposes while they were under the capital controls,” said Alison Shimada, head of the Total Emerging Markets Equity team at Allspring Global Investments.
She added that with the recent change, they are now interested and reviewing the opportunity — but only at the right price.
Some investors have voiced interest in expanding access to listed companies across the region.
Shimada added, “I’d love to see those smaller countries have more listed assets.”
According to the most recent LAVCA data, Brazil has hosted over 1,400 VC-backed startups since 2013, with Uruguay, Chile and Colombia becoming alternative innovation hubs.
Whether or not those companies eventually go public, regional investor interest remains strong.
Rob Citrone, founder of Discovery Capital, said in a recent investor note that the Latin America opportunity does not require sweeping changes in global portfolios.
“Asset flows, on the margin, dictate much of the price performance, so small changes to large markets, such as the US, can have big impacts on smaller markets, such as most in Latam.”
Although Mexico is geographically closer to the trade war’s epicentre, its companies are not significantly exposed to it.
Investors who prefer not to chase equities have turned to Latin America’s local debt markets instead, where many still find favourable pricing and returns.
