LatAm Bull Market Limbo: Looking for Wind, Celebrating Wins

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LatAm Bull Market Limbo: Looking for Wind, Celebrating Wins

IdeaMand rising macroeconomic risks, and accordingly reduced portfolio beta. Brazil,

however, remains our largest Latin American equity exposure. It is also the region's

key electoral story, with the upcoming elections potentially marking a meaningful

shift in fiscal, industrial, and foreign policy—changes that could have significant

implications for Brazilian equities over the coming years.

While the electoral outlook remains highly uncertain, we believe the market

offers an attractive risk-reward profile. Aggregate earnings should remain

relatively resilient, supported by commodity prices and the significant share of U.S.

dollar-denominated earnings, while the market trades at approximately 8x forward

P/E. This creates favorable asymmetry despite elevated risks for domestic cyclicals

and other locally exposed sectors. In our view, Brazil has greater potential to rerate

than to derate from current valuation levels, with its global and export-oriented

companies providing an important earnings anchor. That said, we remain

underweight domestic cyclicals and highly selective across sectors with

predominantly domestic exposure.

Key lessons from the Andes with read across to Brazil. Colombian 10-year

government bond yields have compressed by roughly 240–260bps relative to Brazil

over recent months, after previously trading at near-parity. This provides a useful

case study of how a credible policy shift can lower long-term interest rates and, by

extension, compress the equity risk premium. If Brazil were to experience a similar

improvement in policy credibility following the elections, a comparable decline in

long-term rates could provide a meaningful tailwind for equity valuations. In Chile,