Caruso-Cabrera: The investing tailwinds for Latin America are the best in decades

As measured by the iShares Latin America 40 ETF (ILF) , the region is handily beating the S&P 500 year to date, up 15% compared to the S&P's 11% move. It's up more than 70% since late 2024. Can it continue? In a new report from Citi, Chief Latin America Economist Ernesto Revilla answers with a qualified yes — only if the countries seize the moment. "Latin America is poised for take-off. Or to be more precise: the conditions for Latin America to achieve a higher rate of growth are the best they have been in decades, and it is time to capitalize on the opportunity," wrote Revilla.

The tailwinds helping the region are the best in decades: a weak dollar, strong commodities, favorable geo-politics, and a wave of elections that have brought pro-business and pro-reform leaders to power. The most important factor in the region's success is the weaker dollar, said Revilla. Investors seek out "stronger currencies and returns, debt repayment is cheaper (because they borrow in dollars) and commodity prices move higher." Add modern and mature central banking which is far better at controlling inflation than in decades past. Real rates in Latin America are some of the highest in the world leading to carry levels as high as 10% in Brazil, the report highlights. That attracts fixed income and foreign exchange inflows. At the same time, it also leaves room for cuts, which in turn would help stocks.

Best countries to capitalize Beyond the macroeconomic tailwinds, there are country-specific reasons to be optimistic according to the report, whether its Mexico benefitting from the AI boom through the export of CPUs assembled there, or Argentina undergoing the "most market friendly shift in a generation." Danny Osorio, CEO of Andean Capital Advisors, said private capital flows into Latin America "have been reenergized" as "the region is on more stable footing than it has been in a while." An advisor to asset managers, family offices, and sovereign wealth funds, Osorio said he is seeing repatriation of capital back to Colombia, Peru, Ecuador and Argentina. Also helping is the recent strengthening of ties between the U.S. and Latin America. This month, Secretary of State Marco Rubio visited Colombia, Ecuador and Peru, which are closely aligned with the current U.S. administration. His visit reflects the White House's focus on the Western Hemisphere as articulated in both the National Security Strategy and National Defense Strategy, which called for a renewal of the Monroe Doctrine — leading to the portmanteau of "Donroe Doctrine." This aligns with numerous elections leading to leaders who want stable currencies, increased trade, more open economies, and closer ties with the United States.

The risks The region is not without risks and headwinds. The greatest potential threat — a continued rise in U.S. interest rates. "If the US sneezes interest rate wise, that's full-on pneumonia for Latin America," said Osorio. Both Revilla and Osorio also point to El Nino, which is leading to both droughts and flash floods, hurting the important agriculture sector in countries such as Colombia and Peru. Cit's Latin American equity analysts acknowledge the regions' markets have been on a strong run and "part of the opportunity has already been reflected in valuations." For it to continue, earnings will have to improve, which they believe could lead investors to increase their allocation to the region. "Ev...