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(Bloomberg) -- Growing discontent with left-wing governments is helping fuel a rally in Latin America, with traders scooping up assets at rock-bottom valuations on early bets the next wave of elections in 2026 will usher in more business-friendly regimes.
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Investors at T. Rowe Price and Frontier Road Limited are placing wagers in Colombian stocks and bonds, taking advantage of extremely cheap prices. Some Brazil hedge funds, like Mar Asset Management, are building options bets that gain from stocks rallying.
All mention potential upcoming regime changes as part of the reason for the trades — which are happening much earlier than the usual election cycle, emboldened by a global backdrop that’s seen the re-emergence of Donald Trump in the US and the advance of the far-right in Europe.
Investors “are focusing on these dynamics earlier than the typical election cycle historically has seen,” said Bret Rosen, economist and strategist for Latin America at hedge fund EMSO Asset Management. “Markets are paying attention to polls including ones that pose hypothetical matchups even though we don’t know who the candidates will actually be.”
An index of Latin American stocks is having the best start to the year since 2012, posting more than five times the return of the S&P 500 and double that of other developing regions. Colombian equities are up almost 30% in dollar terms as analysts from Morgan Stanley to Ashmore predict gains citing the May 2026 election. In Brazil, President Luiz Inacio Lula da Silva’s declining approval ratings — or any sign he won’t run for office again in October of next year — have sparked wild intraday gains.
The potential payout of a political reshape — combined with cheap asset prices — is being compared to what traders saw in Argentina. The election of Javier Milei in 2023 with a promise to radically cut spending after decades of mismanagement from left-leaning governments sparked one of the most profitable trades in emerging markets last year.
A shift to the right in the region “has a huge amount of implications,” Porter Collins, co-founder of Seawolf Capital LLC and one of The Big Short traders, said at an alternative investments conference in Miami last month.
Mar, a Rio de Janeiro-based hedge fund launched by veterans of Banco BTG Pactual SA and 3G Capital, has built an options bet on Brazilian stocks rallying. It bought long-dated calls on the iShares MSCI Brazil ETF, the largest exchange-traded fund in the US tracking local equities.