JPMorgan Reverses Course on Latin American Markets: Upgrades Brazil, Downgrades Mexico

JPMorgan shifted its Latin American equity recommendations on Monday, upgrading Brazilian stocks to “overweight” while downgrading Mexican equities to “neutral”.

The Wall Street bank cited changing economic dynamics and performance patterns that now favor Brazil over Mexico. Mexico has outperformed Brazil by 15.4% over the past 15 weeks, prompting JPMorgan to take profits and reposition.

The bank now believes Brazil holds more potential due to three key factors. First, Brazil may approach the end of its interest rate hiking cycle sooner than anticipated.

Brazil’s Central Bank will likely implement a third consecutive 100-basis-point increase this month. This would push the Selic rate to 14.25%, its highest level in over eight years.

JPMorgan analysts expect a potential pause following the March meeting, creating a significant trigger for Brazilian equities. The bank also views China’s recent stimulus measures as beneficial for Brazil due to strong trade links.

Additionally, Trump’s renewed trade tensions with China could boost Brazilian exports of soybeans, cotton, beef, and chicken. Despite the upgrade, JPMorgan emphasizes this change remains tactical rather than structural.

Brazil’s Fiscal Challenges and Investment Strategy

Brazil’s persistent fiscal challenges continue to worry investors. The bank recommends Brazilian bond proxies over exporters, and favors incumbent banks and utilities.

Mexico faces considerable headwinds according to JPMorgan‘s analysis. The economy contracted in the fourth quarter of 2024 for the first time in three years. Analysts expect economic growth to stall completely during the first half of 2025.

Mexico also faces greater vulnerability to U.S. tariffs. Trump imposed 25% tariffs on Mexican imports in early March before exempting many categories for one month. This policy uncertainty compounds Mexico’s challenges.

Anti-immigration measures from the new Trump administration could further damage Mexico’s economy. Such policies might reduce remittances, which currently account for nearly 3% of GDP. A 30% drop in these transfers would reduce GDP growth by approximately 0.75 percentage points.

JPMorgan maintains somewhat defensive allocations in both markets. For Mexico, the bank still prefers consumer staples (especially bottlers), real estate, and financial stocks.

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