By Craig Mellow

Latin America is having a moment. It may last a little longer before confronting some big "ifs."

Stocks in Brazil, which account for 60% of regional market capitalization, have soared by nearly a quarter this year and half over the past 12 months. No. 2 market Mexico is nearly as hot.

Shifts in global sentiment are driving the rally more than anything happening at home. Investors poured twice as much into emerging markets in January as in all of 2025, betting on a weaker dollar and hedging U.S. risk, says Paulina Amieva, portfolio manager for the T. Rowe Price Latin America Fund.

Within the asset class, investors are balancing tech-forward Asian markets with a tech-laggard Western Hemisphere, adds Malcolm Dorson, head of emerging markets strategy at Global X exchange-traded funds. "People are looking for some of that barbell optionality in LatAm financials and commodities," he says.

Brazil's domestic picture offers an additional reason to be bullish. The central bank has tightened interest rates while the rest of the world loosened, to a punishing 15%. With inflation holding below 5% annually, it's expected to cut three percentage points over the next year. That should unshackle an "asphyxiated" economy, says Alejo Czerwonko, chief investment officer for emerging markets Americas at UBS Global Wealth Management. "We are favoring Brazilian stocks, which are direct beneficiaries of both global and domestic trends," he says.

T. Rowe's Amieva thinks Brazil's bulging real interest rate creates space for up to five percentage points in cuts. That could juice standout consumer-facing companies like car rental franchise Localiza and pharmacy chain Raia Drogasil, along with top bank Itau Unibanco.

Risks loom, too. For Brazil, leftist incumbent President Luiz Inácio Lula da Silva looks the favorite to win re-election this October. His archrival Jair Bolsonaro is in jail for plotting to overturn the last election and has tapped his charisma-challenged son Flavio as his stand-in. "The market is kind of resigning itself to Lula, " Amieva says. "No matter who wins, they will have to implement some sort of fiscal adjustment."

Mexico could be in much more serious trouble if President Donald Trump refuses to extend the U.S.-Mexico-Canada Agreement on trade, which is due for "review" this summer. Exports headed North account for nearly 30% of Mexican gross domestic product.

Investors are betting that objective symbiosis and Mexican President Claudia Sheinbaum's skilled Trump whispering will renew the pact with minimal changes. "People are playing Mexico ahead of a potential trade deal," Dorson says.

An emerging bright spot for Latin America could be Argentina, whose stocks are excluded from most indexes after years of economic depredation.

The Global X MSCI Argentina ETF has jumped by a quarter since reformist President Javier Milei triumphed in midterm elections last October. Dorson and Amieva both like Vista Energy, which is domiciled in Mexico but focused on Argentina's massive Vaca Muerta shale oil formation.

"Latin America is back on the map after 10 years falling off the map," UBS' Czerwonko says. The topography might still prove treacherous.

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

February 12, 2026 14:55 ET (19:55 GMT)

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