Why Latin America could be the next international market to watch
Summary
- Latin America is highlighted as a top contrarian play due to a "reform story" (Milei in Argentina, potential shifts in Brazil/Colombia) and attractive valuations (PEs at 50% discount to S&P).
- Brazil offers one of the world's highest positive real rates (15% overnight vs. 4.5% inflation), creating a massive carry trade opportunity and currency stability.
- The speaker advocates a "Barbell Approach": Overweight Latin America (Value/Cyclicals) and Overweight Asia (Korea/Taiwan Tech/AI), despite some caution on pure semiconductor momentum.
- India is identified as an overlooked "gem" where elevated gold prices are driving a wealth effect (20% of household savings in gold), boosting consumer confidence alongside 7.8% GDP growth.
Trade Ideas
The speaker uses a "barbell approach," balancing LATAM with exposure to Korea and Taiwan, citing the "AI ecosystem" (memory/semis) and "capital market reforms" (specifically Korea). While cautious on pure momentum, the structural tailwinds of the memory cycle and governance reforms (the "Korea Discount" narrowing) make these markets attractive on a relative value basis compared to US Tech. LONG Korea and Taiwan ETFs to capture the AI hardware cycle and governance improvements. Cyclical downturn in memory chips or geopolitical tensions in the Taiwan Strait.
Malcolm Dorson
Head of Active Investment Team, Global X Funds
The speaker notes Latin America has a "fantastic reform story" (Milei in Argentina, upcoming elections in Brazil/Colombia) and valuations are cheap (6-7% yields, 50% PE discount to US). Political shifts toward the center-right (reducing risk premiums) combined with massive positive real rates (specifically in Brazil) attract foreign capital flows. As risk premiums compress, equity values in these specific country indices re-rate higher. LONG Latin American country ETFs to capture the macro reform and valuation mean reversion. Political reversals in upcoming elections (May/October) or a resurgence of inflation preventing rate cuts.
Malcolm Dorson
Head of Active Investment Team, Global X Funds
The speaker explicitly states their "biggest overweight from a sector perspective is going to be in financials" within Latin America. He explains the mechanism: As rates come down from 15%, net interest expenses decrease, asset quality improves (fewer defaults), and capital market activity (IPOs/M&A) picks up. Brazilian banks (ITUB/BBD) are the direct beneficiaries of this specific cycle. LONG Brazilian Banks as a levered play on the falling rate cycle in LATAM. If inflation remains sticky and the Central Bank of Brazil cannot cut rates, the thesis for improved credit quality breaks.
Malcolm Dorson
Head of Active Investment Team, Global X Funds
India has underperformed year-to-date, yet GDP is 7.8%, the central bank is cutting rates, and "20 plus percent of household savings lie in gold." With gold prices elevated, Indian households experience a significant "wealth effect," driving consumer confidence "through the roof." This domestic consumption engine, combined with a dip in market performance, creates a tactical entry point. LONG India to capture the disconnect between strong macro fundamentals (consumption + growth) and recent price underperformance. Valuation concerns if the market remains expensive relative to peers; global oil price shocks (India is a net importer).
Malcolm Dorson
Head of Active Investment Team, Global X Funds
When discussing cyclicals, the speaker explicitly lists: "we like copper, we like energy, and we like gold." This is a direct allocation to the "resource-heavy" thesis. These assets act as a hedge against inflation and benefit from the global industrial cycle (Copper/Energy) and the wealth effect mentioned in India (Gold). LONG the liquid ETF proxies for these commodities. Global recession crushing demand for Copper and Energy; strong USD headwinds for Gold.
