LatAm Equity Strategy Mid-Year Outlook: Still Bullish, but Higher Bull-Bear Spread

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LatAm Equity Strategy Mid-Year Outlook: Still Bullish, but Higher Bull-Bear Spread

Latin America InsightMequities as of March-end. The next leg of the market would need to be driven by

locals or, alternatively, global equity funds, although those are more likely to buy

into LatAm equities if the conflict in Iran comes to a resolution or at least de-

escalation.

Unfavorable risk-reward for the consumer. We believe the key driver for LatAm

equities is the quality and sustainability of growth, not headline expansion. A

consumer-led rebound driven by aggressive fiscal policy would likely push rates and

risk premia higher, pressuring FX and equity multiples, while also diverting flows

from equities to fixed income. Conversely, a shift to fiscal austerity would weigh on

domestic cyclicals as growth rebalances toward investment and exports, despite

potential support from lower rates. Against this backdrop of an unfavorable risk-

reward, we remain underweight consumer discretionary and domestic cyclicals in

Brazil and LatAm, and consumer staples in Mexico amid elevated wage pressures.

Too early to upgrade Mexico, despite green shoots. We see green shoots in

Mexico's exports of IT hardware to the US (i.e., Tech Mex). However, we remain EW

Mexico, as we believe electricity generation and transmission capacity still represent

a key risk for Mexican equities.

Exhibit 1: We see circa +13% US$ upside for Latin American equities by mid-

07-May-26 Index Level Target Upside P/E NTM

Index Current Target Mid-2027 LC USD Current (MSe)

MSCI ARG 9,271 12,200 - 32% 7.5x

IBOV 183,218 240,000 31% 22% 8.6x

IPSA 10,871 12,900 19% 22% 12.2x

MEXBOL 70,019 80,000 14% 10% 14.4x

COLCAP 2,166 2,100 -3% -5% 8.2x

MSCI LATAM 3,197 3,600 - 13% 11.0x

Source: Bloomberg and Morgan Stanley Research estimates