Latin American equities are now trading near their lowest valuation levels in more than two decades. There are multiple factors that explain that underperformance, including policy missteps, global capital shifts and persistent structural challenges.
However, the region could be approaching a turning point. Morgan Stanley economists, strategists and sector analysts have outlined a bull case for Latin America, driven by potentially declining interest rates, the election of pro-investment policymakers and supply-chain realignment that elevates the region’s strategic role.
This could play out in the shadow of the global capex cycle for AI with investments in technology, electricity, copper and lithium, all linking back to Latin America. Although this scenario isn’t guaranteed, important elements are already taking shape.
“This trifecta of change could drive a shift to investment-friendly policy,” says Nikolaj Lippmann, Morgan Stanley Latin America Equity Strategist. “If that happens, the region could embark on a credible path of fiscal consolidation, monetary easing and structural reform that would restore investor confidence and attract private capital.”
In Morgan Stanley Research’s bullish scenario, the MSCI Latin America Index could rise more than 90% by 2030. The region’s capital markets could almost triple in size from $2.4 trillion in 2024 to $6.3 trillion by 2035.
Three Forces that Could Lift the Region
Three main catalysts could transform the outlook for Latin America’s economy and markets.
1. Declining interest rates: Interest rates appear to be peaking and could begin falling later in 2026 and beyond, locally and globally. A lower-rate environment would help lift investment as a share of GDP toward levels seen more than a decade ago.
2. Pivotal elections: A new generation of policymakers could prioritize fiscal discipline, deregulation, reform agendas and new trade frameworks with key regional allies, such as the U.S. and China. Those initiatives would attract more investment to the region. Argentina signaled change with its new government in 2023, while Chile and Mexico are seeing progress through executive actions or congressional leadership. Brazil and Colombia head to the polls this year, with investors closely watching the policy implications.
3. Repositioning in a multipolar world: As global supply chains reconfigure, Mexico could gain a more significant role for global and U.S. manufacturing. Chile and Peru remain key suppliers of critical materials, while Brazil and Argentina are poised to expand their energy and food exports to Asia. This geopolitical realignment enhances the region’s strategic relevance. There has already been some important changes in U.S. policy regarding Mexico, the Panama Canal, Brazil and Argentina, the latter even receiving financial support ahead of midterm elections.
The Bull Case’s Requirements and Results
A bullish outlook for key Latin American markets depends on stronger policy credibility and higher investment.
- Brazil would likely need fiscal tightening and reforms to lift investment from about 17% of GDP toward roughly 20% over the next decade.
- Mexico would benefit from smooth US-Mexico-Canada trade negotiations and renewed nearshoring, raising long-run growth from about 2.2% to 2.6% and investment from around 23% to 26%.
- Argentina would need sustained credible reforms to attract foreign direct investment and regain market access.
- Chile would likely require new pro-growth measures and stronger political consensus to help deepen capital markets.
“This bullish case for Latin America requires political will, policy execution and a willingness to break with the patterns of the past,” Lippmann says. “But if local governments can deliver, the upside could be substantial: a Latin America that is not just a supplier of commodities and labor, but a dynamic, investment-driven engine of global growth.”
