LatAm Macro Strategy Mid-Year Outlook: The Good, the Bad, and the Bearish

Research evidence excerpt

LatAm Macro Strategy Mid-Year Outlook: The Good, the Bad, and the Bearish

Latin America InsightMaccurately reflect potential election-related risk premium around the second round

of the presidential election. Additionally, both currencies remain exposed to oil and

copper prices from a terms-of-trade standpoint, but CLP's domestic narrative

should reflect the potential for additional market friendly policies and fiscal

consolidation. We acknowledge that given BCRP's more proactive FX approach,

another spike in global oil prices would pose some risks to our trade, as CLP would

remain more exposed.

• COP: The latest presidential polls in Colombia continue to suggest non-negligible

odds of a candidate generally perceived by the market as having an unorthodox

agenda prevailing after June, while valuations continue to look very unattractive, at

least on a historical basis, implying that FX risks from current levels could be

predominantly skewed to the downside. As such, our COP forecast incorporates

gradual depreciation over the coming quarters, diverging from regional peers.

Similar to Brazil, Colombia's potential election outcomes are also likely to be

perceived as binary from a fiscal standpoint by markets, and we do see USD/COP

potentially breaking 4,000 in a bear-case scenario, but also heading towards

3,400 in the opposite scenario.

• PEN: We expect depreciation pressures to persist through 3Q as political

uncertainty intensifies, though BCRP intervention should contain volatility and

slow the pace of moves. Into year‑end, a more settled political outlook following

the election could allow for some stabilization or modest recovery. That said, our

medium‑term outlook remains cautious. Even beyond the electoral cycle, we see