Where are the investment opportunities in Latin America? (2024)

Latin America has become more important to investors within emerging markets, particularly if you’re looking for growth and diversification.

The region’s home to nearly 670 million people, and has a diverse range of economic drivers and plenty of natural resources.

Politics in Latin America frequently dominates the headlines, and 2024 is no exception.

This year, six countries hold presidential elections.

So far, El Salvador, Panama, the Dominican Republic, and Mexico have announced their winners. While elections in Venezuela and Uruguay are still to come.

Mexico’s in the spotlight following last month’s 66th presidential election. Claudia Sheinbaum secured a decisive victory, making her the country’s first female president. But her appointment triggered market volatility, as the extent of her win caught many off guard.

The Mexican stock market fell following the news and the Mexican peso also came under pressure. The magnitude of this victory could allow the party to implement sweeping changes with little resistance, causing concern among many investors.

Investing in Latin America has always carried higher risks, even compared to other emerging markets, known for their volatility.

This article isn’t personal advice. All investments, and any income from them, can fall as well as rise in value, so you could get back less than you invest. Past performance isn’t a guide to the future. If you're not sure if an investment is right for you, ask for financial advice.

What are you investing in?

Compared to the wider world market, Latin American countries make up a small slice at less than 1% of the MSCI AC World Index.

However, they’re a larger share of the emerging markets index, at around 8%.

Within Latin America, Brazil’s the big fish, making up 57.41% of the MSCI Latin American Index’s value. Mexico follows with 30.91% of the index. The remaining countries, Chile, Peru, and Colombia are considerably smaller in size.

At the sector level, financial companies represent the largest group, around a quarter of the market's value.

Other significant sectors include materials, consumer staples, and energy.

The technology sector is underrepresented in the Latin American index, at less than 1%, compared to 23% in the broader emerging markets index.

The Latin American Index is very concentrated, with the top 10 companies making up for 42.38% of its value. By comparison, the top 10 companies in the US market account for 32.27%.

How has Latin America performed?

Over the long term, the combined Latin American stock markets have performed well.

In the past two decades to the end of May 2024, the MSCI EM Latin America Index has returned 549.50% versus 466.19% for the MSCI Emerging Markets Index. Meanwhile, the MSCI AC World Index grew by 563.14%.

That said, the past decade’s been underwhelming, returning 41.62% versus 71.35% for the MSCI Emerging Markets Index.

Economic growth in the region has been weak over this period, and the pandemic intensified the situation.

From a valuation point of view, emerging markets are generally considered to be ‘cheap’ relative to both their history and to developed markets.

Taking that one step further, within global emerging markets, Latin American markets are even cheaper.

It’s not just about capital growth in Latin America though.

The Latin American Index offers substantial dividend income potential. While emerging markets have a dividend yield of 2.75%, the Latin American index boasts a yield of 5.88%. For context, the MSCI AC World Index yields 1.96%.

Remember though, yields are variable, not a reliable indicator of future income and no investment returns are ever guaranteed.

Where are the opportunities?

The largest economy in Latin America, Brazil boasts a GDP of around $1.92tn. It’s the 11th biggest global economy, with projections indicating significant growth over the next 25 years. Home to over 200m million people, Brazil also has the biggest population in the region.

Brazil enjoys a favourable balance of trade, exporting more than it imports.

It’s a global leader in agriculture, being the world's top producer of soybeans.

And, it’s also a leading exporter of other soft commodities like coffee, corn, and sugar.

The country is rich in minerals, with abundant resources of iron ore, gold, tin, and copper. It means the mining sector plays a crucial role in the Brazilian economy.

Vale, one of Brazil’s largest companies, is the world's largest producer of iron ore and nickel.

Large oil reserves make the energy sector another vital area for its economy and stock market.

Petrobras, the country's largest company, is a significant player in the global oil and gas industry, positioning Brazil among the leading oil producers worldwide.

However, Brazil’s not solely focused on fossil fuels. It’s also one of the world's leading producers of renewable energy, making this sector a promising investment area for the future.

Mexico’s another major economy in the region, with a GDP of almost $1.5tn, making it the second largest in Latin America and the 14th globally.

In terms of GDP per capita – a better indicator of economic prosperity – Mexico surpasses Brazil. Home to around 130m million people, Mexico has the second biggest population in Latin America.

Like Brazil, Mexico enjoys a favourable balance of trade.

Its manufacturing industry is strong, particularly in the automotive sector, with car and truck exports comprising a significant portion of its trade.

Mexico’s also the world's largest exporter of beer and a leading producer of exotic fruits and tomatoes.

A significant benefit to Mexico is its trade relationships with the US and Canada, under the United States-Mexico-Canada Agreement (USMCA).

It’s the largest trading partner of the US, with trade between the two countries reaching record highs in 2023 and showing potential for further growth.

This strategic partnership makes Mexico a key player in North American economic affairs.