Latin American currencies continue to draw support from carry trades, with the Colombian peso, Brazilian real and Mexican peso among the most attractive high-yielding options globally, JPMorgan Private Bank said on Wednesday.
Nur Cristiani, head of Latin America investment strategy at JPMorgan Private Bank, told the Reuters Global Markets Forum that carry strategies—where investors borrow in low-yielding currencies to invest in higher-yielding ones—have delivered outsized returns. A year-to-date strategy involving the Colombian peso, which involves borrowing dollars and investing at Colombia’s overnight rate, has generated a return of approximately 27%, more than double the performance of the S&P 500 over the same period.
The supportive backdrop includes a weaker dollar, driven in part by a recent move to stabilize U.S. Treasury markets, which has made carry trades more profitable. Despite these gains, Cristiani noted that the appreciation in Latin American currencies has not reflected underlying improvements in economic fundamentals. The region’s appeal is further bolstered by its proximity to the United States and abundant natural resources, positioning it as a beneficiary of heightened U.S.-China rivalry.
Cristiani highlighted Chile as offering the most favorable combination of earnings growth, valuations and macroeconomic stability. The country’s economy is supported by a relatively stable outlook, the completion of its monetary easing cycle and strong terms of trade, driven by elevated copper prices. Brazil, while flagged as Cristiani’s most contrarian Latin American pick due to current valuations, remains constrained by fiscal concerns linked to its high overnight interest rate, which stands close to 14% and increases the cost of public debt servicing.
Looking ahead, Cristiani suggested that a more hawkish stance from Chile’s central bank could emerge in the second half of the year, potentially influencing the currency’s trajectory.
