Morgan Stanley published an updated version of its Latin American Model Portfolio. This update incorporates a more diverse approach, increasing exposure to Argentina while maintaining Brazil as the largest overweight in this region.
First changes in the bank’s asset allocation come during a period when emerging markets have seen their largest inflows of capital since 2008. A weaker US Dollar and global diversification searches have fueled demand for more risky assets.
Morgan Stanley cautions, however, that none of the three countries have a solid fundamental background.
While global liquidity may have accounted for many Latin American assets in the last 2025, there are still structural issues to address.
Brazil’s rate of growth is declining, whereas Mexico’s has remained nearly the same.
Morgan Stanley will strategically increase (or decrease) its exposure to the market in order to take advantage of opportunities in the short term.
Brazil: Barbell Approach in a Transitional Economy
Brazil, the cornerstone of Morgan Stanley in Latin America is rated overweight.
Plan remains on “barbell allocation” which balances industries relating to energy, agricultural, and technology. Collectively, this is known as “Texas Trade.”
Morgan Stanley has increased its investment in Klabin, a leading pulp and paper manufacturer, as well as Vivara, a network of jewellery retailers.
Simultaneously it sold Usiminas and decreased holdings of Rumo (RAIL3), and Banco do Brasil.
The bank, which is still overweight, has concerns about the domestic consumption cycle, due to Brazil’s ongoing budgetary problems.
Morgan Stanley says that the GDP equation of the country requires a major shift from government spending and consumption (C&G), to investment and exports.
Bank of America continues to favor financial services, which it considers the most attractive domestic sector, while commodities-linked industries, such as oil and agriculture in particular, offer the highest risk/reward ratio amid the currency downturn.
Morgan Stanley on the other side points out a paradox. Foreign investment in Brazilian stocks is at an historic high while the local equity market participation is low.
The investment thesis has flagged a risk of lower global growth, which is exacerbated due to US tariffs, volatility in commodity and oil prices and US tariffs.
Argentina: betting reform in spite of risks
Morgan Stanley has increased its allocation for Argentina, a major change in its view of the region.
Banco Galicia has been added to the bank’s portfolio, increasing its exposure to names in finance.
Morgan Stanley is of the opinion that Argentina can benefit from a path of gradual stabilisation and reforms, despite concerns about macroeconomic insecurity and ongoing restructuring.
The decision of the Bank signals a growing investor interest in the potential upsides that could result from reopening the policies.
Morgan Stanley admits that risks are increasing, but claims investors who have high risk appetites can enjoy asymmetric returns.
Mexico: The near-term outlook is clouded by structural obstacles
Morgan Stanley continues to have a cautious outlook on Mexico. Mexico’s favourable position in the trade market should be a boost for the country. However, political and regulatory risk are increasing ahead of a USMCA review scheduled for 2026.
Bank of America cites poor performance by Mexican corporations in the second quarter 2025. Many Mexican firms have failed to meet sales targets.
Electrical sector margins are being squeezed by high real salaries, cost pressures and other structural issues.
Morgan Stanley has adjusted its Mexican Portfolio by increasing its exposure to Grupo Mexico, reducing Orbia and completely removing Alpek.
Chile: limited catalysts and attractive valuations
Morgan Stanley is continuing to monitor Chile in the context of the “Andean Spring.”
The political situation is improving and valuations are at attractive levels.
Higher savings rates also support the macro-environment.
The bank admits that it is hard to identify immediate investment catalysts.
Morgan Stanley believes that Chile is a strong country from a macro perspective, but there are no micro-opportunities in Chile. Morgan Stanley has therefore only slightly increased its exposure to Chile.
Conclusion: selective optimism amid uncertainty
Morgan Stanley’s Latin America Model Portfolio demonstrates an approach that is both risk-aware and selective.
Although capital inflows, and a weaker currency help to improve the situation, fundamental problems and slow growth continue to influence regional conditions.
Bank policy is to support Brazil’s commodities and financials, take a conservative approach towards Mexico, place bets in Argentina on reform, and show patience with Chile.
The post Morgan Stanley increases Argentine exposure as part of LatAm shift and maintains Brazil overweight may be updated to reflect new developments.
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