How I Made $5000 in the Stock Market

Tariffs Be Damned. These Latin America Funds Are Buys.

Oct 08, 2025 02:00:00 -0400 | #Markets #Funds

The Brasil Bolsa Balcao stock exchange in São Paulo. (Victor Moriyama/Bloomberg)

Key Points

Sometimes the headlines don’t match the markets.

In the midst of a U.S. trade war with Brazil, the iShares MSCI Brazil exchange-traded fund is up 36% in 2025. That compares to just 16% for the S&P 500 index and is well ahead of the average foreign stock fund.

The $5.8 billion Brazil ETF is in a tiny category of 18 Latin America stock funds that are on fire this year, with the average one up 38%, according to Morningstar. Part of the move is currency-related. The Brazilian real is up 15% versus the U.S. dollar this year. But that is true for almost every non-U.S. currency. The euro, for instance, is up 12%, yet the average Morningstar Europe stock fund has gained only 29%.

“We feel pretty strongly that even though the dollar has weakened significantly against a broad basket of currencies and against some of the Latin American currencies in particular, it can continue to weaken,” says Kristy Akullian, head of iShares investment strategy for the Americas. “Historically, when you look at currency cycles, they tend to move in relatively long horizons. Going back to the 1970s, the average currency cycle has been about eight years, and we’re a bit less than three years into the current one.”

While President Donald Trump has imposed an extraordinary 50% tariff on Brazilian goods because of the criminal conviction of its former President Jair Bolsonaro for an attempted coup, the truth is the U.S. is a paper tiger when it comes to Brazilian trade. “Brazil’s a relatively closed economy, and the U.S. isn’t the main trading partner—it’s China,” says Verena Wachnitz, manager of the T. Rowe Price Latin America fund. “Brazilian exports to the U.S. account for less than 2% of [Brazil’s] GDP, so the impact on the economy is manageable.”

In fact, Brazil is one of the few countries the U.S. has a trade surplus with instead of a deficit. Mexico, by contrast, is a major U.S. trading partner, but U.S. tariff burdens are a less onerous 25% and exclude items because of the U.S.-Mexico-Canada Agreement. “Over time, we’ve seen that, with the exception of some sectors like auto and steel, the free-trade agreement is covering more than 80% of trade [with Mexico], so Mexico versus the rest of the world is in a pretty good space,” Wachnitz says.

One reason for both the currency and the stock rally is that investors “hit peak U.S. exceptionalism around the end of 2024,” Akullian says. Given the harshness of its trade and other government policies, investors have sought to diversify away from the U.S. But another driver is that Latin American stocks are exceptionally cheap.

The MSCI Emerging Markets Latin America Index —comprised of 60% Brazil stocks, 28% Mexico, 6% Chile, and 5% Peru—had a trailing price/earnings ratio of 11 at the end of September. By contrast, the MSCI USA Index, which is similar to the S&P 500, had a trailing 29 P/E. The broader MSCI Emerging Markets Index had a 16 P/E, cheap but not as cheap. Brazil is only 4% of that benchmark and China 31%.

All of which means that investors seeking exposure should either buy a dedicated Latin America fund or an actively managed emerging markets fund that overweights the region. Yet cheapness by itself is rarely a catalyst for stock rallies. Another key driver of performance is the expectation of interest rate cuts, as the high inflation that plagued the region has been coming down. Brazil’s central bank interest rate is 15% while inflation is 5%, providing bond investors a 10% inflation-adjusted yield. Meanwhile, U.S. interest rates are 4.25% and inflation 2.9%.

“One reason [Latin America] is trading at a discount is interest rates are so high that a tremendous amount of the domestic wealth has rotated to fixed income,” says Scott Piper, manager of the DWS Latin America Equity fund. “But we’re entering an interest rate reduction cycle in Brazil, Mexico, and Chile. So you’ve got a strong combination of troughing valuations—with the average dividend yield of [stocks in] the region at 6%—coupled with peak interest rates coming down. The two, in combination, is a very powerful force.”

That is why Piper has a large 13% weighting in utility stocks such as Brazilian electrical utility Centrais Eletricas Brasileiras, or Electrobras, for short. Because utilities tend to pay high dividends, they benefit from interest rate reductions on bonds, which they compete against for investor dollars. Electrobras currently has a 6% dividend yield, but Piper expects that yield to rise significantly, as the company has strong cash flow with ample room to increase its dividend.

Wachnitz favors the financial sector, which is 38% of her portfolio, with big weightings in companies like Brazil’s Itau Unibanco. “This is a bank that has been able to deliver 20% plus ROE [return on equity] in all weathers, and gain market share over the years,” she says. “They have a high-single-digit dividend yield.”

Nor is she alone in noticing the strength of Brazil’s banking sector. One of the best-performing diversified emerging market funds, Seafarer Overseas Value , has a significant 18% Latin America weighting, more than half of which is in Brazilian companies like Itau. Lead manager Paul Espinosa says Itau has delivered a strong ROE even during recessions, “and you’re buying that at a cheap valuation. I’ll take that anytime.”

If Latin America’s headline risks are too great to stomach, consider a diversified fund like Seafarer to gain exposure. It could smooth out your returns while still providing access to an increasingly attractive region of the investment world—no matter where U.S. tariffs are.

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