LATAM Stocks Stealing the Spotlight in 2025

LATAM Stocks Stealing the Spotlight in 2025

After a five-year bleed-off, Latin American (LATAM) stocks are enjoying a moment in the spotlight as market-wide indices climb 25% since January. 

Latin American equities are dominated by Brazil (60% of the MSCI Emerging Markets Americas Index) and Mexico (28%), with Chile, Colombia, and Peru filling out the rest. 

Unlike the tech-heavy U.S. market, Latin America leans heavily on cyclical sectors: financial services and basic materials top the index, followed by consumer defensive, industrials, and energy. 

This cyclical tilt has been a boon in 2025, fueled by a supportive macro backdrop that includes strong corporate earnings, a weakening U.S. dollar, and appreciating local currencies like the Brazilian real and Mexican peso.

The region has flipped the script after a dismal 2024, where Latin America was the world’s worst-performing equity region due to inflation-driven rate hikes in Brazil and political risks in Mexico (think Claudia Sheinbaum’s election and Trump’s tariff rhetoric). 

Top models in 2024 projected ten-year annualized returns of 12.5% for Brazilian equities and 8.5% for Mexican stocks in USD terms, citing cheap valuations and overblown risks. 

So far, they’re looking prescient.

Here’s what’s driving the current rally, some of which points to actual LATAM strength rather than the region simply serving as a place to park investment cash among the current “sell America” trend:

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But It’s Not All Smooth Sailing

Latin America’s volatility is legendary. The region’s stocks have underperformed the U.S. market over the past decade, especially in USD terms, due to weakening commodity prices, a strong dollar, and political meddling (e.g., government influence over Petrobras and Vale). 

While 2025’s rally is impressive, a potential global recession or renewed tariff wars could hit cyclical sectors hard. Brazil’s twin deficits and Mexico’s trade ties to the U.S. add risk.

Still, valuations remain attractive, while the region’s 5.88% dividend yield (versus 1.96% for the MSCI AC World Index) sweetens the deal for income-focused investors.

The Main Takeaway

Latin American stocks are riding a wave of commodity strength, currency tailwinds, and undervaluation, but their volatility demands a strategic approach. 

❌ Don’t chase the rally blindly. Cyclical sectors like energy and materials can swing wildly with global economic shifts. 

✅ Diversify across sectors and countries to mitigate country-specific risks, favoring companies with strong balance sheets and competitive advantages. 

✅ Look for high-yield, resilient picks in financials and consumer staples, and consider ETFs for broad exposure to temper volatility.