Since 2025, Latin American equities have outperformed both developed markets and overall emerging markets. This strong performance has been driven by several factors that have favored the region.
Factors behind regional performance
Political changes have played a significant role in the region’s strong relative performance, with a shift towards center-right governments that has been favored by investors. Additionally, high real interest rates have supported the region, while the weakness of the US dollar has been a positive factor for Latin American assets. Latin America tends to perform better than any other region during periods of dollar weakness, and this trend has been confirmed recently. Higher commodity prices have also contributed significantly to the regional performance.
Latin America has not been immune to recent market volatility. The conflict with Iran triggered a sharp correction in sectors that had previously performed well, and as a result, Latin American equities experienced a significant decline.
Emerging opportunities across the region
A key theme emerging throughout Latin America is the wave of political changes favoring center-right governments, which has been consistently rewarded by equity markets. This shift began with the rise to the presidency of Javier Milei in Argentina and continued with the election of José Antonio Kast as president of Chile. A similar political change is expected in the Peruvian elections. Perhaps the most significant aspect is that the Brazilian presidential elections in October 2026 currently appear highly contested between incumbent President Lula and Flávio Bolsonaro, son of former President Jair Bolsonaro, with potential implications for the entire region.
Commodity prices remain a decisive factor for Latin America’s performance. Chile and Peru are among the world’s largest copper exporters and are well positioned to benefit from current supply and demand dynamics for the metal. Peru is also a major gold exporter, while Brazil’s export portfolio is dominated by commodities such as iron ore, crude oil, and agricultural raw materials. If commodity prices remain high, driven by strong global demand, this would provide substantial support to the region.
Latin America has emerged as one of the main beneficiaries of the ongoing reorientation of global supply chains, as companies increasingly seek to reduce dependence on distant production centers amid concerns about post-pandemic resilience and geopolitical tensions between the US and China. This shift has accelerated demand for nearshoring – relocating production closer to end markets to reduce logistics costs, delivery times, and supply chain risk. Mexico stands out as a particularly attractive destination given its geographic proximity to the US, competitive labor costs, skilled manufacturing workforce, and established trade infrastructure under the USMCA (United States-Mexico-Canada Agreement). However, it will be crucial to monitor the upcoming joint USMCA review in summer 2026, as this could impact Mexico’s competitiveness and influence investment decisions across the region.
Managing short-term risks
The US dollar plays a crucial role in the performance of emerging market equities. Historically, there has been a strong negative correlation between the strength of the dollar and the relative performance of emerging markets compared to developed markets. The dollar weakness observed throughout 2025 provided significant support to emerging market equities. Both emerging markets and the US dollar tend to move in long-term cycles, and we continue to believe that the dollar has likely entered a prolonged weakness cycle, which should support emerging markets going forward.
The conflict with Iran temporarily disrupted this dynamic by triggering a strengthening of the dollar. If this trend continues, it would pose a headwind for emerging markets in general. Some emerging countries are net oil importers, making them vulnerable to prolonged periods of high energy prices. Currently, Asian economies appear most vulnerable to energy price shocks due to their greater dependence on oil imports from the Middle East compared to, for example, Latin America. Our current assessment is that the conflict with Iran will likely be short-lived. However, if the situation extends beyond current expectations, it could represent a risk.
High-potential markets and sectors
We believe some of the most interesting long-term opportunities lie in companies benefiting from rising domestic consumption and financialization in emerging countries. Consumer goods companies are set to benefit from rising incomes, urbanization, and the formalization of economies across the region. Financial sector companies also present compelling long-term opportunities. Many emerging markets show low penetration levels in banking, insurance, and capital markets sectors, which should support sustained growth in these sectors as economies develop and consumers gain greater access to financial products and services.
Latin America is well positioned in this regard, given its broad middle-class consumer base and the relatively low levels of financial services penetration found in most countries in the region.
Beyond Latin America, North Asian markets remain well positioned to benefit from high growth in artificial intelligence investments. South Korea and Taiwan host numerous key companies within the AI supply chain and, although these markets have delivered strong performance and valuations have been revised upward, long-term opportunities remain structurally attractive.
It is also worth highlighting the role of India, as it offers long-term opportunities in emerging markets despite lagging behind the broader group in 2025. Although India’s valuations do not appear cheap, the country remains among the fastest-growing economies, and its favorable demographic profile, combined with an abundance of high-quality companies, continues to support long-term investment prospects.
