Caruso Cabrera: Investment tailwinds in Latin America are at their best in decades

as measured by iShares Latin America 40 ETF (ILF)this region is comfortably ahead. S&P500 Year-to-date, it’s up 15%, compared to the S&P’s 11% rise. It has increased by more than 70% since the second half of 2024.

Can I continue?

In a new Citi report, Ernesto Revilla, Latin America’s chief economist, says a conditional yes, but only if countries seize the moment.

“Latin America is poised for takeoff. More precisely, the conditions for Latin America to achieve higher growth rates are the best they have been in decades, and the time has come to take advantage of the opportunity,” Revilla wrote.

The tailwinds supporting the region are the best in decades, including a weak dollar, strong commodities, favorable geopolitics and a series of elections that brought pro-business and pro-reform leaders to power. Revilla said the most important factor in the region’s success was the weaker dollar.

Investors want “a stronger currency and returns, cheaper debt service (because they borrow in dollars) and higher commodity prices.” Add in modern mature central banks that are much better at controlling inflation than they have been in previous decades.

The report highlights that real interest rates in Latin America are among the highest in the world, with carry levels as high as 10% in Brazil. This will attract inflows of bonds and foreign exchange. At the same time, there is room for cuts, which should support stock prices.

Beyond macroeconomic tailwinds, the report says there are country-specific reasons for optimism, including Mexico, which is benefiting from the AI ​​boom through exports of CPUs assembled in Mexico, and Argentina, which is experiencing “the most market-friendly shift in a generation.”

Danny Osorio, CEO of Andes Capital Advisors, said private capital flows to Latin America are “reinvigorating” as the region is “on a more stable footing than it has been for some time.” Osorio, who advises asset managers, family offices and sovereign wealth funds, said he is seeing a repatriation of capital to Colombia, Peru, Ecuador and Argentina.

The recent strengthening of relations between the United States and Latin America is also providing a tailwind. This month, Secretary of State Marco Rubio visited Colombia, Ecuador, and Peru, countries that have close ties to the current US administration. His visit reflects the White House’s focus on the Western Hemisphere, as articulated in both the National Security Strategy and the Defense Strategy, which call for a revamp of the Monroe Doctrine, leading to the coining of the “Donroe Doctrine.”

This coincides with a number of elections leading to leaders seeking a stable currency, increased trade, a more open economy, and closer ties with the United States.

The region is not without risks and headwinds. The biggest potential threat is the continued rise in US interest rates.

“If the U.S. cuts rates wisely, it will cause a full-scale outbreak in Latin America,” Osorio said. Both Revilla and Osorio point out that El Niño causes both droughts and flash floods, hurting the vital agricultural sectors of countries such as Colombia and Peru.

Cit’s Latin American equities analysts acknowledge that markets in the region are performing well and that “some of the opportunities are already reflected in valuations.” They believe that for this to continue, returns will need to improve, which could lead to increased regional allocations by investors.

“Even a modest reallocation of global capital to the region can have a meaningful impact,” said Andres Cardona, director of Latin American equity research at Citi.

European investors have already put more money into Latin American stocks in 2026 than they have in the past 16 years, the Financial Times reported, citing Morningstar statistics.

The region is underbanked, and Osorio said expanding financial services is a strong trend with many opportunities, as mortgages and auto loans are becoming more available than ever.

Nu, a digital bank founded in Brazil that has since expanded to Colombia and Mexico, is rated Overweight by Morgan Stanley, and its price target has been raised to $21 from just under $14. The company announced this month that it is expanding into the United States.

Brazil also has important short-term triggers and risks. The country’s presidential election is just a few weeks away. The latest opinion polls show Flavio Bolsonaro as the pro-business candidate, neck and neck with current President Lula da Silva. The poll showed for the first time that Bolsonaro was within reach of becoming president, leading to a sharp rise in Bovespa. The first round is scheduled for October 4th, and the runoff election is scheduled for October 25th.