By Gustavo Medeiros, head of research at Ashmore Group
Latin American equities returned 54.5% in US dollar terms in 2025 and another 25.5% year-to-date. Yet the region still trades at a large 47% discount to the S&P 500 and 37% to Developed Markets ex-US on 12-month forward price-to-earnings ratios.
Both discounts are significantly larger than their 20-year averages of 26% and 14%. The gap reflects positioning and a mistrust of earnings: Asia’s AI winners outshine the rest of the world, and global allocators remain underweight in a region many wrote off after a lost decade.
Politics is no longer the obstacle
The “pink tide” of left-leaning governments elected between 2018 and 2022, compounded by the pandemic, raised political instability, stalled reforms and left the region underperforming, with long-dated projects on hold. That trend, however, has now reversed. Argentina’s Javier Milei won a mid-term mandate in October 2025, Chile inaugurated José Antonio Kast in March, Peru elected Keiko Fujimori in June and Colombia’s Abelardo de la Espriella took office in August.
Brazil is the final piece. Flávio Bolsonaro led the 4 October first round with 47.0% against Luiz Inácio Lula da Silva’s 45.2%, and the runoff is on 25 October. Right-wing parties will command a majority in both houses of Congress from 1 February. Bolsonaro’s economic team is floating expenditure cuts worth 1.5% of GDP, a spending freeze while gross debt exceeds 65% of GDP (it is about 82% today), and privatisations. That would be a credible break with the past.
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Mexico bucked the trend, but its government has adopted a more pragmatic stance. President Claudia Sheinbaum is inviting private capital back into energy through mixed schemes with CFE and Pemex as her ‘Plan México’ prioritises energy, including fracking, alongside roads, railways and ports. Execution has been slow, however, and JP Morgan estimates the plan will add only 0.3 percentage points to potential growth.
A capex cycle with a broad remit
The investment pipeline is unusually broad. Brazil’s grid-access requests from data centre projects reached 38 GW by June, with 7.1 GW tied to an estimated BRL159bn of investment. The Redata tax regime should broaden this pipeline. JP Morgan counts $148bn of projects under Argentina’s RIGI, $314bn on Chile’s investment registry and a $64bn Peruvian mining pipeline.
Add transmission, clean generation, irrigation, gas logistics, and the opportunity set spans utilities, industrials, materials, energy and the banks that finance them, while fast technology adoption adds AI beneficiaries. As resource demand meets liberalisation, volumes expand and earnings rise. As power constraints bite in the US and Europe, hyperscalers are looking south. Brazil generates around 90% of its power from renewables and has large reserves of rare earths.
An asymmetric bet versus the US
For global allocators, the key comparison is the US. The S&P 500 trades on 19.1x forward earnings, nearly double Latin America’s 10.1x. Yet consensus expects similar three-year earnings growth (13.8% a year for LatAm vs 13.6% for the US), and Latin American stocks yield 4.9% against the S&P 500’s 1.1%.
The payoffs are lopsided. If US growth disappoints, the 19.1x multiple leaves prices very exposed; if Latin America delivers, investors earn the growth, a re-rating and a large dividend. On consensus earnings, the discount narrowing to its 26% long-term average would give Latin America a three-year total return of around 131%, versus 53% for the S&P 500 at unchanged valuation: roughly 78 points of outperformance. If the discount holds, the region returns around 69%, 17 points ahead. Even a de-rating to the record 65% discount would still return around 17%, underperforming by 36 points, as the dividend offsets much of the valuation compression.
What this means for allocators
Most investors hold Latin America only as a passenger in a passive EM fund. There it is under 10% of the index, and Brazil and Mexico make up more than 85% of the region. That is too little, and too concentrated, to truly capture the cycle.
There are four factors investors should consider when adding Latin American exposure, in our view. First, choose active emerging markets managers who can run a large overweight to the region. Second, consider a distinct Latin America allocation with the flexibility to reach Chile, Peru, Colombia, and Argentina, where much of the capex sits.
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Third, look beyond equities: the region is over a quarter of EM local currency bond indices, with some of the highest real yields in the world. Finally, build positions over the coming months and quarters rather than chasing the post-election move.
This is not to say the region is without risk: Brazil’s fiscal arithmetic demands unusually swift execution. So does Colombia’s where politics remain polarised and commodity prices could turn. El Niño will disrupt much of the region, hitting Ecuador and Peru hardest, while Argentina could benefit. But capex cycles historically run for a decade, and the starting valuation offers an unusually wide margin of safety. The cycle nobody is positioned for is already under way.
