Rodrigo Campos and Carolina Mandl

Mon, Jun 9, 2025, 4:06 AM5 min read

By Rodrigo Campos and Carolina Mandl

NEW YORK (Reuters) -Latin America has emerged as a top investing destination as ongoing wars - both of the military and trade variety - make investors seek options in a region they view as refreshingly untroubled by tariffs and major conflicts.

Portfolio flows data suggests that investors are largely underexposed to Latin America even as many stock markets - including Brazil's and Mexico's - are trading at or near record highs, while sovereign bonds offer still-attractive yields. Although some prefer not to chase a stock rally, others have focused on the local debt market.

"The Latam story is easier to tell now as stocks are cheap and there is a lack of options in emerging markets," said Leonard Linnet, head of equities at Itau BBA. "China is at the epicenter of the trade war, India is more expensive and has some geopolitical issues with Pakistan and investors are avoiding investing in Russia.”

Brazil and Mexico are the behemoths where most international investors concentrate their exposure to Latin America. Both carry by far the largest regional weights in global benchmarks for stocks and bonds. Among all emerging markets, however, the two countries are relatively small. Brazil, which is Latin America's largest economy and market, constitutes 60% of the MSCI Latam index and just below 5% of the broader EM index.

The stock markets of both Brazil and Mexico are trading near record highs and at low valuations, and their bonds offer attractive yields with the backdrop of softening monetary policy.

The investment avenues thin out for some institutions as some Latin American markets are comparatively illiquid or lack investment-grade credit ratings. But in that higher-risk environment other investors see returns.

"The investment opportunity in Latam does not require large changes in global asset allocations," Rob Citrone, founder of global macro hedge fund Discovery Capital, told his investors recently.

"Asset flows, on the margin, dictate much of the price performance, so small changes to large markets, such as the U.S., can have big impacts on smaller markets, such as most in Latam."

After a 26% decline in the regional stock index last year, Latam is the best performer for stocks this year. Within the MSCI universe, investors are paying just over $9 for each dollar in earnings across Latam - compared with more than $19 for developed markets.

Although Mexico is closer to the trade war's epicenter, its listed companies are not so exposed to it, so the country's stocks are moving higher.