Narayan AmmachchiU.S. investment bank Morgan Stanley has issued a stark warning on the fallout of the global trade war, triggered by U.S. President Donald Trump, for Latin America. The region, heavily reliant on oil and commodities, faces rising risks amid slowing growth and a sharp fiscal downturn.
The report flags 2024’s budget deficits as the worst in three decades—raising alarms over debt sustainability, especially if oil prices remain low. Despite this, Brazil emerges as a bright spot, thanks to its relatively stable fiscal stance and low interest rates.
Mexico, however, is singled out for vulnerability. While not officially targeted by U.S. tariffs, its exports now effectively face a 16% tariff, according to Morgan Stanley. Given its heavy dependence on U.S.-bound exports, Mexico’s already weak growth prospects look dimmer.
In Colombia, although interest rates are attractive, the peso is considered overvalued. Morgan Stanley recommends investors take long positions on the U.S. dollar against the Colombian currency. Chile, a net oil importer, is benefiting from lower oil prices but has limited capacity to handle forex volatility.
The firm is bullish on Chilean equities and Argentina’s oil-related stocks, particularly in the Southern Cone. It also flags 2026 as a pivotal year for Chile and Colombia, with both nations headed for key elections amid record-low government approval ratings.
Overall, Morgan Stanley sees significant divergence in investment opportunities, with political uncertainty and commodity exposure continuing to shape Latin America’s outlook.
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