Latin America – are commodity giants making a comeback?

In the diverse world of emerging markets, Latin America can often be an afterthought. And in some ways, that’s understandable.

The region’s importance within the MSCI Emerging Markets index, the main benchmark for the sector, has fallen as regions like Asia have grown. Today, it comprises less than 10% of the index, down from over 20% in 2008.

But with signs of an attractive backdrop, could Latin America be staging a comeback?

This article isn’t personal advice. If you’re not sure an investment is right for you, ask for financial advice. All investments and any income from them can rise and fall in value, so you could get back less than you invest. Past performance isn’t a guide to the future.

What opportunities are there in the region?

The investment landscape in Latin American is dominated by Brazil and Mexico, with the former making up more half of the market. Companies from Chile, Peru, and Colombia also feature.

From a sector perspective, around a third of the index is in financials, like regional banks. There’s also the presence of materials and energy companies, both of which can provide exposure to a variety of commodities.

This contrasts with the broader MSCI Emerging Markets benchmark, which has an 11% allocation to energy and materials companies. The two sectors make up less than 10% of the MSCI ACWI index, which spans 47 countries across both developed and emerging markets.

The commodities cycle

Some investors and market analysts believe 2025 was the start of a new commodities ‘supercycle’ – a sustained period of price increases for raw materials driven by higher demand. The last period like this was in the early 2000s, as rapid industrialisation in China and other developing economies pushed both demand and prices higher.

Gold’s historic rally through 2024 and 2025, peaking at over $5,000 an ounce, was well documented. While not grabbing the same headlines, other metals like copper and lithium, also performed strongly. And countries in Latin America are among the top producers of both.

There’s strong demand for copper because of its role in some rapidly growing industries.

Copper plays a key role in electrification, from the move towards electric vehicles (EVs) to construction of data centres supporting artificial intelligence (AI) adoption. Lithium is critical in battery technology, putting the metal at the core of the transition to EVs as well as energy storage from renewable sources like wind and solar.

Despite the role miners play in sourcing materials that will aid a move towards carbon neutrality, their operations come with high ESG (environmental, social, and governance) risk. These risks range from carbon emissions to the disruption mining activities can have on local communities.

While demand is increasing, supply is much slower in keeping up. The lead time to bring a new copper mine up to full production is years, so demand can continue to outstrip supply for some time. The International Energy Agency has forecasted a potential supply shortfall of 30% by 2035.

When prices rise, earnings for miners also tend to increase. And some companies have already seen strong share price appreciation as a result.

An important point to note is that China accounts for over half of global copper consumption. With the growth of the Chinese economy showing signs of slowing, any further downturn could have a material impact on demand.

How are domestic economies positioned?

2026 will see elections in three Latin American countries, most notably Brazil in October. Recent elections in the region show a trend towards right-of-centre governments, one which current polls indicate is likely to continue in Peru and Colombia this year too. Electorates are moving across the political spectrum in the hope this may improve economic conditions.

Interest rates in Brazil are still high. After being one of the first countries in the region to raise rates in 2022, Brazil was also one of the first countries to start cutting rates. However, this stoked inflation again, forcing rates up once more. A small cut in March reduced rates to 14.75%, with inflation still above the 3% target but showing a clear downward trend.

Higher interest rates typically boost the earnings of domestic banks, another large part of the country's stock market.

It’s a similar picture in Mexico, with inflation remaining stubbornly above target. Despite that, interest rates have been reduced steadily and, following another cut in March, are at 6.75%.

Economic growth continues to be steady in the region and is estimated to average just below 2% in 2026. Peru, a heavy commodities exporter, has the highest projected growth at 3.1%. This growth rate compares favourably with developed countries, like the US and UK, but some emerging markets peers like India are expected to see faster growth.

From a stock market perspective, Latin American countries have performed strongly recently and comfortably beaten emerging market peers in Asia and Europe.

That said, investors should be aware investing in emerging markets is higher risk and volatility should be expected. Any investment in a subset of the emerging markets universe, like Latin America, should only make up a small portion of a well-diversified portfolio.

Both actively managed emerging markets funds on the Wealth Shortlist currently invest more than the benchmark in Brazil. The country makes up 7.5% of the JPM Emerging Markets fund and 11.4% of Invesco Global Emerging Markets. Fund managers find opportunities in multiple sectors, from oil & gas company Petroleo Brasileiro SA Petrobras to retailer Lojas Renner and communications business Telefonica Brasil.