While the flow of foreign capital into B3 may have reversed direction and registered strong outflows in recent months, BlackRock sees Brazil and Latin America as the main destinations for the second half of the year within the universe of emerging markets.
Even after downgrading its recommendation for emerging market equities from overweight to neutral following profit-taking, the American asset manager, which has approximately US$14 trillion in assets under management globally, has begun prioritizing Latin America within that universe.
The assessment is that the region manages to reconcile good exposure to the thesis of artificial intelligence (AI) , the main catalyst for global markets, with the fact that it is not the main center of this transformation, in addition to being relatively isolated from the main geopolitical tensions of today.
"Latin America is not large enough to single-handedly carry an overweight recommendation for emerging markets, but we believe it is worth highlighting its opportunities," said Axel Christensen , chief investment strategist for Latin America at BlackRock, on Thursday, July 2, during an event with journalists.
"We are redirecting our interest to Latin America. And, naturally, Brazil, due to its size, becomes the main focus of this interest," he added.
According to Christensen, several countries in the region are linked to the global artificial intelligence supply chain. Chile, Peru, and Argentina , in addition to Brazil, are seen as important suppliers of minerals critical to the development of the infrastructure necessary for AI.
The region also addresses a number of demands that have emerged following the pandemic and the escalation of global conflicts. This is the case with nearshoring , which has made Mexico one of the main beneficiaries of this trend; energy security, driven by Argentina's gas reserves; and food security, an area in which Brazil has been excelling.
"The region has excelled on several fronts — artificial intelligence, the new geopolitical order, global supply chains, and energy security. During the conflict in the Middle East , for example, it demonstrated a significant degree of resilience, and investors are recognizing this," Christensen stated.
However, domestic factors counterbalance the weight of AI in Latin American markets, helping global investors diversify their portfolios. "Emerging economies, especially in Latin America, have this local component, this idiosyncratic element, which we believe is a good way to achieve diversification," he said.
More than in equities, BlackRock sees great opportunities in the Latin American fixed income market, as it combines attractive returns with relatively moderate volatility.
"When we analyze the different sources of income within the fixed income universe, and this is important for emerging markets and, naturally, for Latin America and Brazil, we are seeing a very attractive position for emerging market debt. We recommend an overweight position in this asset class," said Christensen.
As the largest economy in Latin America, Brazil is expected to benefit from this scenario. In addition to high returns on fixed income, the country possesses characteristics that could place it among the top destinations for global investment amidst the advancement of AI and the geopolitical reorganization of the world economy.
For this potential to translate into economic growth, however, the country will need to increase investments in infrastructure . And the next government's main mission will be to accelerate economic growth, transforming the country's competitive advantages into GDP expansion. This will depend on an environment of lower interest rates.
"Brazil has several opportunities, but when we look at the IMF projections or the Focus survey, we see that the market expects growth that is not particularly strong," said Christensen. "One of the opportunities, and also one of the challenges for the administration that will take over in 2027, will be to find ways to strengthen the engines of economic growth."
