Latin America’s markets have outperformed the S&P 500 this year, with the iShares Latin America 40 ETF rising 15% compared to the S&P’s 11% increase. Since late 2024, this ETF has gained over 70%, reflecting growing investor interest in the region.
Citi’s report from Chief Latin America Economist Ernesto Revilla highlights that the conditions for stronger growth in Latin America are the most favorable in decades. He emphasizes that the region must seize this opportunity to sustain momentum.
Key factors behind this positive trend include a weaker U.S. dollar, strong commodity prices, supportive geopolitical dynamics, and elections that have brought pro-business and reform-oriented leaders to power. Revilla identifies the weaker dollar as a particularly significant driver, as it strengthens local currencies, reduces dollar-denominated debt costs, and supports commodity prices.
Central banking in the region has also matured, managing inflation better than in past decades. Real interest rates in Latin America rank among the highest worldwide, with Brazil offering carry levels near 10%. These attractive rates draw investment into fixed income and currency markets and provide room for rate cuts that could further benefit equities.
Country-specific prospects add to the broad regional tailwinds. Mexico benefits from the AI technology boom through CPU exports, while Argentina is experiencing a market-friendly policy shift not seen in generations. Danny Osorio, CEO of Andean Capital Advisors, notes renewed private capital inflows into countries such as Colombia, Peru, Ecuador, and Argentina, indicating growing confidence in the region’s economic stability.
U.S.-Latin America relations have strengthened recently. In September, Secretary of State Marco Rubio visited Colombia, Ecuador, and Peru, countries closely aligned with the U.S. administration’s focus on the Western Hemisphere. This emphasis appears in both the National Security Strategy and National Defense Strategy, signaling a renewed engagement sometimes referred to as the “Donroe Doctrine.” These diplomatic ties correspond with political shifts favoring stable currencies, open trade, and closer cooperation with the United States.
Risks remain. The most significant concern is the potential for U.S. interest rates to rise further. Osorio warns that a rate hike could severely impact Latin America’s economic progress. Additionally, the El Niño weather pattern is causing droughts and floods, harming agriculture in Colombia and Peru.
Market valuations reflect the recent rally, with Citi’s equity analysts noting that much of the opportunity has been priced in. Continued gains will depend on improvements in earnings, which could encourage further capital inflows. Andres Cardona, Citi’s director of Latin American Equity Research, points out that even modest global reallocations to the region could have a substantial impact.
European investors have increased their allocations to Latin American stocks in 2026 more than in the past 16 years, according to data cited from Morningstar. The iShares MSCI Brazil ETF is the region’s most liquid vehicle, managing $8.6 billion with average daily trading volume of 23 million shares. It has climbed 18% this year and holds large positions in mining (Vale S.A.), oil (Petroleo Brasileiro SA Petrobras), and financials (Itau Unibanco, Nu Holdings).
Financial inclusion in the region is expanding, with mortgages and auto loans becoming more accessible. Osorio highlights the growth of financial services as a major trend, particularly through digital banks like Nu, which started in Brazil and expanded to Colombia and Mexico. Morgan Stanley rates Nu as overweight, with a price target of $21 compared to its sub-$14 current price. The bank recently announced plans to enter the U.S. market.
Brazil’s presidential election is a key upcoming event. Polls show Flavio Bolsonaro, considered more business-friendly, running neck and neck with incumbent President Lula da Silva. This competition has already sparked a rally in Brazil’s Bovespa index. The first round of voting is set for October 4, with a potential runoff on October 25.
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