US political support tilts Latam market risk, investors say

NEW YORK - Latin America's political map is tilting to the right just as Washington signals deeper support for ideologically aligned governments, a convergence that investors say is starting to reshape how risk is priced across the region's assets.

Conservative leaders already govern Argentina, Ecuador and El Salvador, with Bolivia joining the market-friendly column this month. A right-wing bloc came close to winning simple majorities in the Chilean Congress earlier this month, with Jose Antonio Kast tipped to become the country's first far-right president since the Pinochet dictatorship.

Conservative candidates are also likely to win presidential elections in Peru and Colombia next year. This leads up to the upcoming departure of leftist Gustavo Petro, who cannot run for reelection in Colombia, and whose outspoken criticism of U.S. policies has made him one of President Donald Trump's top bogeymen in the region.

Amid the burst of support for Argentina's government during the October midterms, U.S. Treasury Secretary Scott Bessent said there was a "generational opportunity" to create allies in Latin America, citing upcoming elections in Chile and later in Colombia.

While Trump has picked fights with Colombia, Brazil and above all Venezuela, his administration has also cozied up to governments pursuing deregulation, aggressive crime-busting or budget-cutting, showering such allies with financial favors that some fund managers say are now starting to influence sentiment.

Trump's actions against Venezuelan President Nicolas Maduro have triggered massive market interest on bets of a change.

"We've generally seen it as a positive development for risk in the countries which matter to the U.S., and there's definitely been a pickup in focus around Latin America in particular," said Grant Webster, co-head of EM FX and sovereign in the EM fixed income team at investment manager Ninety One.

Latin American financial assets have had a strong 2025 across the board, with some countries' markets enjoying outsized gains despite tangling with Trump. For example, Brazil's and Colombia's currencies are up 15% and 16% against the greenback, respectively. The dollar is down 8% this year against its developed market peers.

The outperformance has straddled the region, with local currency bonds gaining 15% at the index level, while hard-currency has gained 16%, both outperforming their global peers. Equities in the region have rallied over 40% in dollar terms this year, while their price-to-earnings ratio shows they remain cheap compared to both emerging and developed markets.

Yet the U.S. approach in the region could work as more of a differentiating variable going forward, with Argentina serving as the poster boy for the new U.S. approach.

Washington has been an outspoken supporter of Argentine President Javier Milei's libertarian overhaul, offering up to $20 billion of the country's balance sheet to stabilize the economy and support the government. Fitch said the involvement spared Argentina, whose reserves had been dwindling in the weeks before the U.S. intervention, another credit rating downgrade.

That stance has reinforced the perception that ideological alignment may bring financial benefits.

"It certainly has been for Argentina. It's been helpful for Venezuelan debt prices," Webster said. "We take each one as it comes, but on the whole we slightly view other countries in a different light now, because we think the U.S. could have positive influence over them."

Venezuelan bonds, although deeply distressed and still trading around 30 cents on the dollar, have returned close to 100% this year, making them the top performers globally in hard currency bond returns according to JPMorgan's benchmark.

Chile's impending realignment has driven one of the region's strongest equity rallies this year, with the S&P IPSA index up 48%, far outperforming even Mexico and Brazil's local benchmarks, up close to 30%.

"With right-leaning parties only one vote away from securing simple majorities in the recent Lower House and Senate elections, we would expect strong Congressional support for growth and investment-enhancing reforms, even if in practical terms they might take time to materialise," Morgan Stanley analysts wrote this week. Foreign investment in the country could ramp up early next year, they added.

Conservative candidates' electoral dominance has supported expectations of regulatory streamlining and tight-fisted budget policies beyond Chile. For investors, the election result there "just confirms the trend, which I would say is market positive," said Viktor Szabo, portfolio manager at Aberdeen Investments.

"We do have that move to the right, as we have seen in Argentina, as we've seen in Bolivia. And it's quite important, because we have some really important elections coming up next year, particularly in Colombia and especially in Brazil," he added. "It's clear the markets have preference for right-wing governments."

Still, Trump's alliances, which are sometimes fickle, could end up taking a back seat to fiscal health and macroeconomic stability over the longer-term, favoring countries like Peru over Chile and especially Argentina, which is haunted by memories of fiscal crises.

"We don't see Washington alignment as a primary pricing variable yet," said Pramol Dhawan, head of PIMCO's emerging markets portfolio management team. "Markets favor credible macro policies regardless of political orientation. The real question is policy execution and institutional strength. We price country-specific fundamentals first, geopolitics second." REUTERS