Daily Macro

Macro Notes - LATAM Equities An Uncrowded Rotation

October 20, 2026

Saakshi Mehta

Vice President, ETF & Alternatives Strategy

Latin American (or LATAM) equities have emerged as a pocket of strength, delivering positive month-to-date returns despite broader weakness across developed and emerging markets (Chart 1). The outperformance is driven primarily by Brazil, which dominates the index, with a secondary tailwind from Mexico.

More importantly, the rally has not been driven by multiple expansion. The MSCI EM Latin America GDP Weighted Index trades at a lower 12-month forward P/E multiple than at the beginning of the year and remains inexpensive relative to its longer-term history (Chart 2). Recent performance therefore appears to reflect improving earnings expectations over the next 12-months.

The timing also matters as investors scrutinize the durability of the AI trade. LATAM provides differentiated exposure outside technology-heavy markets, with greater exposure to financials, materials and energy. The US dollar remains the key tactical risk. A weaker dollar would support regional currencies and foreign capital flows, while renewed strength could reverse part of the recent momentum.

Taken together, we view BMO MSCI Latin America GDP Weighted Index ETF (ZLAT) as a tactical allocation for investors looking to diversify beyond crowded AI exposures without chasing an expensive market.

Chart 1: LATAM Equities Pull Ahead

Chart 2: 12-month Forward P/E

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