Morgan Stanley has published an update to its Latin American model portfolio, which incorporates a more diversified approach by boosting exposure to Argentina, while keeping Brazil as its biggest overweight in the region.
The bank’s first allocation changes come in a year in which emerging markets saw the largest capital inflows since 2008, as a weaker US dollar and a global diversification search boosted demand for riskier assets.
However, Morgan Stanley warns that all three countries do not have a convincing fundamental backdrop.
The bank notes that, while global liquidity has claimed many Latin American assets over the past 2025, structural challenges have yet to be dealt with.
Brazil’s growth rate is dropping, while Mexico’s is nearly unchanged.
With this environment in mind, Morgan Stanley is tactically raising (or decreasing) exposure in the near term to capitalize on opportunities judiciously.
Brazil: A barbell approach in a transitional economy
Brazil is Morgan Stanley’s cornerstone in Latin America, earning an overweight rating.
The plan remains based on a “barbell” allocation, which balances financial services with industries related to energy, agriculture, and technology, collectively known as the “Texas trade.”
Morgan Stanley increased its investments in Klabin (KLBN11), a major pulp and paper company, and Vivara (VIVA3), a jewellery retail network.
Simultaneously, it sold Usiminas (USIM5) and reduced holdings in Rumo (RAIL3) and Banco do Brasil (BBAS3).
Despite maintaining an overweight posture, the bank is concerned about domestic consumption cyclicals, citing Brazil’s persistent budgetary challenges.
According to Morgan Stanley, the country’s GDP equation requires a significant change from consumption and government expenditure (C&G) to exports and investment.
The bank continues to favour financial services as the strongest domestic play, while commodity-linked sectors, particularly oil and agriculture, have the best risk-reward profile amid currency tailwinds.
Morgan Stanley, on the other hand, points to a paradox: foreign investment in Brazilian shares is at an all-time high, while local participation in the equity market is at historic low levels.
Lower global growth, exacerbated by US tariffs and volatility in oil and commodity prices, has been flagged as a significant risk to the investment thesis.
Argentina: betting on reform despite the risks
Morgan Stanley is raising its allocation to Argentina in a significant turn for its regional view.
The bank is raising its exposure to financial names, with added Banco Galicia to the portfolio.
Even though concerns remain over macroeconomic uncertainty and restructuring efforts persist, Morgan Stanley believes that the path of reforms and gradual stabilisation opens up favourable opportunities for Argentina.
Despite the still tricky economic environment, its decision signals increasing investor appetite for the policy-reopening upside.
Morgan Stanley acknowledges the increased risks but says investors with a high appetite for risk have asymmetric risk-adjusted returns right now.
Mexico: structural hurdles cloud the near-term view
Morgan Stanley’s outlook for Mexico continues to be cautious. The favourable trade positioning should boost the country, although political and regulatory risks are rising ahead of a review of the USMCA in 2026.
The bank cites poor corporate performance in the second quarter of 2025, with many Mexican companies falling short of sales targets.
High real salaries and cost pressures have eroded margins, and structural challenges remain in the electrical sector.
As a result, Morgan Stanley adjusted its Mexican portfolio by increasing exposure to Grupo México (GMEX), reducing its position in Orbia, and removing Alpek entirely.
Chile: attractive valuations, limited catalysts
Morgan Stanley continues to track Chile within the framework of “Andean Spring.”
This leaves valuations at attractive levels and the political outlook improving before the November 2026 elections.
The macro environment is also supported by higher savings rates.
However, the bank says identifying immediate catalysts to invest in is difficult.
Chile looks strong from a macro viewpoint (Morgan Stanley), but it seems to offer no truly attractive micro opportunities, so Morgan Stanley only moderately adjusts its Chilean exposure.
Conclusion: selective optimism amid uncertainty
Morgan Stanley’s new Latin America model portfolio demonstrates a selective and risk-aware approach.
While capital inflows and a weakened currency provide help, sluggish growth and fundamental issues continue to shape the regional environment.
The bank’s policy supports Brazil’s financials and commodities, takes a cautious approach to Mexico, bets on reform in Argentina, and is patient with Chile.
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