Latin America’s equities rally in 2025 shows signs of staying power

• Verena Wachnitz
  Portfolio Manager
  T. Rowe Price

Last year was particularly difficult for the region’s largest economies. Brazil, which has significant exposure to commodities such as iron ore and oil, was hit hard by falling prices. Political instability and concerns over the country’s deteriorating fiscal position led to currency depreciation, persistent inflation, and high interest rates. In Mexico, investor sentiment was dampened by a devaluation of the peso and political uncertainty surrounding both domestic elections and those in the United States. The threat of U.S. tariffs later in the year added further pressure. Despite these headwinds, some of the smaller markets in the region, such as Colombia and Peru, managed to perform relatively well, returning 10% and 16% respectively in 2024.

Coming into 2025, Latin American markets were largely overlooked by global investors. Valuations were depressed, and investor positioning was light, creating a setup where even modestly positive news could trigger a sharp rebound. That is exactly what unfolded. Fears of a collapse in the North American Free Trade Agreement (NAFTA) have not materialised, and the tariffs imposed by the U.S. have been relatively mild at 10%1. A weaker U.S. dollar has also provided relief, allowing central banks in the region to begin cutting interest rates rather than maintaining high levels to defend their currencies.

Meanwhile, corporate performance across the region has remained strong. Companies, particularly in Brazil and Mexico, have shown resilience through effective cost management, strong pricing power, and robust shareholder returns via share buybacks and dividends. Many have upgraded their earnings guidance, reflecting margin expansion and operational strength despite ongoing market volatility.
Looking ahead, several factors could support the continuation of this bull run. The combination of a weaker dollar, stimulus measures from China, and relatively low oil prices is expected to give central banks further room to ease monetary policy. Valuations across Latin America remain attractive both in absolute terms and relative to historical norms. There is also a growing influx of domestic investors into regional equities, and a rotation of capital away from U.S. markets is helping to boost liquidity and reinforce the positive momentum.

Political developments may also play a role in sustaining the rally. Over the next 18 months, it is anticipated that left-wing governments in countries such as Chile, Colombia, Brazil, and potentially Peru will be replaced by centre-right administrations. Historically, such transitions have been welcomed by markets, particularly in currency trading. On the geopolitical front, many Latin American countries are benefiting from the strained relationship between the U.S. and China. Mexico, in particular, continues to gain from the trend of friend-shoring, while Brazil has implemented high trade barriers and increased taxes to protect local industries from Chinese competition.

Although a broad-based commodities bull market is not expected in the near term, any recovery in key exports such as copper, iron ore, or soybeans would provide an additional boost. Until recently, underperformance in copper has weighed on Chile and Peru, while stagnant iron ore and soybean prices have been headwinds for Brazil.

Overall, Latin American equities are benefiting from a rare alignment of favourable macroeconomic conditions, political shifts, and strong corporate fundamentals. With resilient companies, improving investor sentiment, and supportive global trends, the region appears well-positioned to sustain its strong performance through the remainder of 2025 and beyond.