Carolina Wilson, Vinícius Andrade and Liza Tetley
5 min read
(Bloomberg) — Emerging-market money managers are zeroing in on Latin America for their next big trade as a wave of upcoming elections could redraw the region’s political map, potentially aligning several countries more closely with Donald Trump.
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The renewed attention comes after Argentina’s massive rally following President Javier Milei’s win in midterm elections, backed by unprecedented US support. For many, it made the country a case study for how right-leaning political shifts — and especially those perceived as Trump-friendly — can unleash gains in developing-world assets.
“You are facing a potential shift at the pendulum toward the right in Latin America,” said Pramol Dhawan, head of emerging markets portfolio management at Pacific Investment Management Co. “If there is a swing to the right, these assets will rip — there’ll be nothing remotely close to giving the returns you’ll get in Brazilian or Colombian local markets.”
Chile, Colombia and Brazil, some of the region’s largest economies, hold presidential elections in the next 12 months, with investors hoping for a shift to a more market-friendly approach in all three.
At the center of the trade along with Argentina are countries like El Salvador and Ecuador that investors see as more aligned with US interests. Dollar bonds of the three countries have delivered investors gains of at least 24% since Trump’s election last year, according to data compiled by Bloomberg. That compares with a 13% return for a benchmark index of developing-nation sovereign debt.
The surge highlights how some funds are chasing election-specific outcomes as a driver of market moves. Zaftra, a Brazilian hedge fund that specializes in election-driven bets, posted its best month on record in October, gaining 9.2% after fees as it profited from Milei’s midterm win.
The fund, launched in 2023, also built a bullish position in the Chilean peso ahead of the country’s first-round vote that saw another right-wing candidate gain prominence, according to Felipe Sze, a portfolio manager at billionaire Alberto Safra’s financial firm ASA, which manages the fund.
Changing Dynamics
“The way Trump’s administration sees the Western hemisphere is as its backyard, with the US having not just a right, but an obligation to intervene — particularly when it comes to countering China’s influence in mining-heavy countries like Chile,” said Petar Atanasov, Gramercy Funds Management’s co-head of sovereign research.
