Will Latin American politics shift back to the centre?
Latin America has a busy electoral calendar for the next two years and the results will have important implications for investors.
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Latin America is entering a pivotal electoral cycle that could reshape its political and economic landscape. Over the next two years, the region may shift from predominantly left-leaning governments to more centrist, market-friendly administrations, potentially reigniting reforms, strengthening fiscal discipline, and restoring investor confidence. While investors face a stream of fast-changing newsflow around US trade tariffs, it’s crucial to keep an eye on other events affecting the region’s fortunes.
In 2024, Latin American equities underperformed significantly, with the MSCI Latin America Index dropping 26% in US dollar terms due to domestic policy concerns and external pressures, such as US dollar strength and China’s economic slowdown. Concerns over Brazil’s fiscal discipline and Mexico’s governance challenges further weighed on sentiment.
However, bright spots emerged. Argentina posted a 117% US dollar return, driven by bold reforms, while Peru experienced a recovery supported by political stability. These examples underscore the critical role of sound domestic policies in shaping market outcomes, making the upcoming elections key to the region’s economic trajectory and investment opportunities.
Source: Schroders, as at February 2025
Argentina
Argentina will kick off Latin America’s electoral season with its pivotal midterms in October 2025, serving as a referendum on President Javier Milei’s performance midway through his term. These elections will be critical as they will renew half of the deputies and a third of the senators. This is particularly significant for Milei, given his party's limited representation and the necessity of these elections to advance his reform agenda.
The midterm elections in Argentina play a vital role in shaping the country's political and economic future. For President Milei, achieving strong results is essential to pushing forward his ambitious structural reform agenda, which seeks to tackle longstanding issues within the Argentine economy and political framework. A successful election outcome would not only enhance his mandate but also provide him with the legislative backing required to implement these crucial reforms effectively.
Several key factors warrant close attention as the elections approach, particularly on both macroeconomic and political fronts. Economically, it will be important to maintain the disinflationary trend and support Argentina's V-shaped economic recovery. Politically, the focus will shift to La Libertad Avanza, a relatively newly established party, and its efforts to solidify its presence nationally while forming alliances.
Chile
Chile will hold general elections in November 2025, during which voters will elect a new president (as consecutive presidential re-election is not allowed), renew half of the Senate, and replace the entire lower house of Congress.
Recent electoral outcomes suggest Chileans are leaning toward political moderation continuing the country’s stabilisation since the turbulent 2019 protests. This sentiment was underscored when voters rejected two versions of a proposed new constitution—in September 2022 and December 2023—highlighting resistance to sweeping changes.
President Gabriel Boric’s low approval ratings and the centre-right opposition’s gains in the October 2024 regional elections further reflect this trend. Polls suggest the upcoming elections are likely to consolidate a more centrist political landscape. The polls will become more reliable once the names of the candidates of the main parties are confirmed.
Peru
Peru’s presidential elections in April 2026 could offer a rare moment of continuity in a country plagued by political instability. With seven presidents in the past decade, few leaders have managed to complete their terms. Congress will also be fully renewed, and Peruvians will elect a bi-cameral congress for the first time since former President Alberto Fujimori dissolved it in 1993 after his “self-coup”. The election of a Senate should strengthen the legislative power’s stability.
Dina Boluarte, who assumed office after Pedro Castillo’s impeachment and arrest in December 2022, has presided over a period of relative stability despite her low approval ratings. Improved cooperation between the executive and Congress, combined with a more favourable external environment, has spurred economic momentum, as exemplified by investments in mining and infrastructure, which have rebounded.
History shows that a year is a long time in Peruvian politics, and we don’t know yet who the most likely frontrunners will be. However, if the current stability is sustained in the outcome of the April 2026 elections, this positive progress would further accelerate.
Colombia
Colombia heads to the polls in May 2026, with the prospect of a change in government high. The country’s constitution prohibits presidential re-election, and President Gustavo Petro’s party lacks the legislative clout to maintain control.
Petro’s tenure has been marked by fiscal mismanagement, which has weakened the Colombian peso and eroded confidence in public finances. His administration’s controversial reforms—targeting healthcare, pensions, regional autonomy, and fossil fuels—have faced significant resistance.
As Colombia’s first modern left-leaning president, Petro’s policies have polarised voters. Early indications suggest the electorate may lean back toward an administration with more moderate policies, seeking stability and economic discipline.
Brazil
Brazil’s general elections in October 2026 will determine the presidency, the entire lower house of Congress, two-thirds of the Senate, and over half of the governorships.
President Luiz Inácio Lula da Silva (Lula), who has expressed intent to run for re-election for what would be his fourth term in office, remains popular, buoyed by economic growth and low unemployment. However, challenges loom: rising inflation, currency depreciation, and rising interest rates are expected to slow economic activity in the lead-up to the elections.
Lula’s age (he will be 81 in 2026) and recent health concerns may also influence his campaign. Additionally, fiscal sustainability has emerged as a critical issue. Despite a robust economy, market sentiment has soured due to limited progress on fiscal reforms.
As the elections approach, fiscal uncertainty is likely to dominate market dynamics, making the stance of the candidates and the outcome of the vote pivotal for Brazil’s economic trajectory.
US
While Latin America's elections will dominate regional politics, US policies remain a key short-term driver for its markets. In Mexico, trade relations with the US are at a critical juncture, shaped by negotiations on immigration, drug trafficking, and Chinese investments. Despite tensions, mutual interests suggest Mexico will retain its preferential trade agreement with the US, providing stability for its export-driven economy.
For the broader region, US policies will have indirect but significant effects. The Federal Reserve’s high interest rates have strengthened the US dollar, pressuring Latin American currencies and bond markets. Additionally, US actions toward China—South America’s largest trade partner—will impact commodity prices and trade flows.
Markets could stabilise if the new US administration adopts a more measured approach than its recent rhetoric suggests. With Latin American currencies and rates already under stress, even minor policy shifts could offer relief, creating opportunities for strategic investors. The interplay between US policies and regional developments will remain a critical factor shaping Latin America's economic and market outlook.
What this all means for investors
Latin America’s packed electoral calendar promises to reshape the region’s political landscape over the next two years. From Argentina’s crucial midterms to Brazil’s high-stakes presidential race, the outcomes will have lasting implications for governance, economic policies, and market confidence. The early trends make us constructive that the policy pendulum is swinging back to orthodoxy, which would be an important catalyst for the market. Until then, US policies and the dollar are likely be a dominant driver of domestic returns.
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