Emerging Markets in Latin America Are Not Just More of the Same

Latin America’s EM have often been overshadowed by EM Asia and EM EMEA. Now, that may be changing. The region’s distinctive sector composition, thematic exposures and historically low valuations may be attracting global equity investors’ attention. We examine how the region differs from its EM peers by analyzing its sector and thematic exposures as well as its valuations. The disparities identified suggest EM Latin America may present opportunities for investors to reposition their portfolios away from overvalued regions and toward underappreciated EM poised to benefit from this rotation.

Latin American countries offer a more globally diversified economic-exposure profile than that of their Asian counterparts, based on an analysis of revenue sources across the Global Industry Classification Standard (GICS®) sectors.¹ MSCI Economic Exposure data at the end of May 2025 showed that, on average, companies in Brazil, Chile and Mexico generated a significantly larger share of revenue from regions outside the U.S. and China compared to firms in emerging Asia. This broader international exposure may be beneficial amid ongoing U.S.-China trade tensions because of less reliance on the two dominant global economies.

Data as of May 30, 2025. The blue line shows the sector revenue (in USD billions) weighted by free-float market-capitalization (FMC) for each sector in the region as represented by the respective MSCI EM Index. The bars represent the percentage distribution of revenue by source: China, the U.S. and all other countries. Source: MSCI Economic Exposure data

Although certain sectors in the MSCI Chile, MSCI Brazil and MSCI Mexico Indexes, such as materials and consumer staples, have meaningful exposure to the U.S. and Chinese markets, Latin America overall — proxied by the MSCI Emerging Markets Latin America Index — has a more balanced global-revenue distribution. This stands in contrast to a dependency on China of certain companies in the MSCI Emerging Markets Asia Index, in which many sectors derive over 50% of their total revenues from China alone.

As of the end of May 2025, Chile, Brazil and Mexico collectively represented approximately USD 568 billion, or 94%, of the MSCI Emerging Markets Latin America Index's total free-float market capitalization, which in turn represented about 7.3% of the MSCI Emerging Markets Index.

Data as of May 30, 2025.

EM Latin America’s sector composition differs from other EM regions. EM Asia, constituting roughly 80% of the total EM free-float market cap, is overweight information technology (IT), which represented only 0.7% of the Latin American market as of May 30, 2025.

Although financials was the largest sector in both EM EMEA and EM Latin America, it dominated the former, claiming around 50% of the MSCI EM EMEA Index weight. EM Latin America, in contrast, had a more balanced sector mix with more exposure to materials and consumer staples— sectors underrepresented in both EM Asia and EM EMEA.

The three largest Latin American countries vary in their sector composition: Brazil is overweight financials and energy; Mexico, consumer staples and materials; and Chile, financials, materials and consumer discretionary. This variation enhances sector-risk diversification, creating a potential cushion against a cyclical downturn.

Our analysis using the MSCI Thematic Relevance Score — designed to measure the importance of long-term secular trends, such as robotics and the digital economy, to a company’s business activities — shows that EM Latin America has distinctive thematic tilts. Companies in Brazil and Chile, in particular, offer different thematic exposures — for example, efficient energy, fintech innovation and future mobility — versus companies in EM Asia and EM EMEA.

Data as of May 30, 2025. Showing exposures to themes to which at least one of EM Asia, EM EMEA or EM Latin America had more than a 5% exposure. We excluded overlapping themes.

Although Brazil is among the top 10 global petroleum producers and the sixth-largest consumer of electricity in the world, at the end of 2024, 90% of its electricity came from hydro (56%) and solar (24%), consistent with a high exposure to the efficient-energy theme. Brazil also has strong exposure to fintech innovation through its digital banks, which operate entirely online and serve population segments that have had limited access to traditional banking. As the world’s second-largest exporter of lithium used in the production of batteries for electric vehicles, Chile has high exposure to the future mobility theme. These themes in the EM Latin America universe offer less-correlated growth opportunities for investors seeking diversification from the IT companies in EM Asia and consumer discretionary stocks in EM EMEA.

Latin America EM equities are currently trading at significant discounts compared to both their Asian counterparts and their own historical valuation ranges, based on the 15-year period from Dec. 31, 2010, to May 30, 2025. Among the major countries in Latin America, Brazil stands out with the steepest discount.

Data from Dec. 31, 2010, to May 30, 2025. The metrics are calculated on a trailing basis. The box plots show the historical distribution of relative-valuation ratios (MSCI Emerging Markets Latin America Index divided by MSCI Emerging Markets Asia Index). Values above 1.0 indicate that EM Latin America is trading at a premium to EM Asia. Values below 1.0 indicate a trading discount.

At the sector level, most sectors in the MSCI Emerging Markets Latin America Index are trading at a discount, sitting in the bottom half of their historical relative valuations.

Whereas discounted valuations in EM EMEA reflect structural challenges, EM Latin America's valuation picture appears more cyclical and sentiment driven. The valuation disparity suggests potential for mean reversion if macro conditions stabilize, or if capital rotates from more richly valued markets to less appreciated ones.

Investors that gravitated toward Asia and EMEA for EM exposure were attracted by scale, technological innovation and high-growth potential. But concentration in these regions and concerns over tariffs may encourage investors to re-visit their EM Latin America allocation. Compared to EM Asia and EM EMEA, EM Latin America offers more-diversified revenue streams, more-balanced sector exposure, distinct thematic characteristics and historically low valuations — key dimensions in assessing such a shift.