Global investors are pouring into Latin American stock markets at the fastest pace in a decade, driving regional indices to multi-year highs. Major markets in Brazil, Colombia, and Mexico are witnessing substantial foreign inflows, propelling the MSCI Emerging Markets Latin America Index to an 11-year high. The index has surged over 20% year-to-date, marking its strongest start to a year since 1991. Last Friday, the index recorded its ninth consecutive weekly gain, the longest such streak since 2017.
The renewed investor interest in this long-overlooked region is primarily driven by bets on upcoming presidential elections in Brazil and Colombia, with expectations of potential policy shifts and interest rate cuts. The rally gained further momentum after the U.S. Supreme Court rejected a key trade measure, which investors view as an additional positive catalyst for Latin American equities.
"Latin America is back on the investment radar, with attention levels not seen in 10 to 15 years," said Alejandro Chehtman, Chief Investment Officer for Americas Emerging Markets at UBS Global Wealth Management. "Emerging markets have long been under-allocated, and Latin America even more so."
Although global capital is diversifying away from U.S. assets, benefiting emerging markets broadly, inflows into Latin America have been particularly strong.
Malcolm Dorson, Senior Portfolio Manager at Global X Management, noted that the recent court ruling has heightened concerns over U.S. fiscal deficits and political uncertainty, weakening the dollar and likely driving further short-term capital into Latin American assets.
This buying frenzy is also evident in U.S.-listed ETFs. BlackRock's iShares Latin America 40 ETF (ILF) attracted over $1 billion in January alone, a record inflow, lifting its total assets to approximately $4.3 billion.
The largest U.S. ETF tracking Brazilian equities, the iShares MSCI Brazil ETF (EWZ), recorded its strongest monthly inflow in over a decade in January, becoming the preferred vehicle for exposure to Latin America's largest market. Billionaire Stanley Druckenmiller's Duquesne Family Office also increased its position in the ETF ahead of its 17% surge in January.
Part of the optimism toward Brazil stems from market expectations of a potential political shift in the October presidential election, with current President Luiz Inácio Lula da Silva possibly facing defeat.
"We don't know who will win, but if the opposition prevails, the gains could be greater than if Lula remains in power," said Thierry Larose, a portfolio manager at Scotiabank.
However, this is not a guaranteed bet. The entry of former President Jair Bolsonaro's son, Flávio Bolsonaro, into the race late last year has complicated the outlook, weakening expectations for the candidacy of market-favored São Paulo Governor Tarcísio de Freitas and triggering a sell-off. Many investors are waiting until April, when officials must resign to run for office, before making significant bets.
In Colombia, the upcoming May presidential election is clouded by division among right-wing candidates, while a left-wing candidate currently leads in polls.
"A right-wing victory would be positive; if the left wins, a significant weakening of asset prices cannot be ruled out," Larose added.
Although Mexico does not have a national election this year, it faces uncertainty from the ongoing review of the trade agreement with the United States and Canada.
Local investors remain cautious. Foreign capital is increasingly bypassing ETFs and buying directly in local markets. Regulatory and analyst data show that foreign purchases in Brazil, Mexico, and Colombia reached at least a four-year high in January.
This contrasts sharply with the stance of local investors, who remain wary of political risks.
"Typically, local investors are more concerned about politics than foreign investors," said Benjamin Sousa, Head of Latin America Strategy at BlackRock. This does not mean foreign investors are unconcerned about political uncertainty, "but ultimately, the market rationally judges where potential returns lie."
Beyond politics, investors also anticipate that central banks in several Latin American countries will begin cutting interest rates, further supporting equity gains.
The market expects Brazil's central bank to start cutting its benchmark rate from a near 20-year high of 15% as early as March. Meanwhile, Mexico's central bank unanimously held its rate at 7% on February 5th, pausing a nearly two-year easing cycle.
"Whether it's rate cuts in some countries, favorable political shifts, or positive commodity trends, we maintain a positive outlook on Latin America," said Ola El-Shawarby, Portfolio Manager at VanEck, which holds an overweight position in the region.
Key events to monitor include GDP releases from Mexico and India, and an economic activity index from Argentina. Mid-February inflation data from Brazil could support a 50 basis point rate cut in March. Central banks in Nigeria, South Korea, and Thailand are set to announce interest rate decisions, while Colombia's central bank board will assess economic data ahead of its March policy meeting. South African Finance Minister Enoch Godongwana is scheduled to present the new fiscal year's budget.
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