This is the abridged version of the article, which can be read in full here.
Political Landscape & Macro Outlook
Mexico
Claudia Sheinbaum has exceeded expectations, showing independence from AMLO and demonstrating fiscal discipline. Her measured approach to social policies has helped stabilize the budget. Electoral reform passed with minimal market disruption, and judicial concerns have faded. US-Mexico relations are surprisingly strong, due to Sheinbaum’s taxation on Chinese imports and cooperation on immigration and fentanyl. Tariffs and immigration are politically charged but offer long-term upside for Mexico through near-shoring and labour supply improvements.
The economic outlook, while not robust, is better than anticipated and increasingly positive in the current global landscape. Risks remain around judicial reform, energy sector investment, and balancing labour reforms with economic growth.
Brazil
The 2026 presidential election is pivotal. Lula’s popularity has waned, and a shift to the right is expected, which we believe would be positive for markets. Jair Bolsonaro’s conviction makes his candidacy unlikely, but who he supports is key to political change. If he supports a third-party candidate like Tarcisio de Freitas or Carlos Massa Júnior then an electoral shift is very much expected with the political right unified and focused on winning. By contrast, if Bolsonaro supports one of his family, political victory over Lulu seems less likely. Key dates include Bolsonaro’s appeal and Tarcisio’s April 2026 deadline to resign if he intends to run.
Brazil’s economy faces both risks and opportunities over the next 12-24 months, significantly intertwined with the political outlook.
Other
Argentina remains uninvestible but shows promise under Javier Milei.
US immigration, tariffs, currency and US exceptionalism were all under discussion and all represent both risks and opportunities for LatAm investment.
Infrastructure Sector Insights
Mexican Airports
Structural long term traffic demand remains attractive despite near term pressures from ongoing Pratt & Whitney plane engine recall, Trump policy and Mexico City slot limitations. Each of the operators have their own drivers of value and we continue to position to capitalise on GAP’s long term structural growth, ASUR’s near term commercial spend upside and international diversification and OMA’s yield opportunity.
Brazilian Transport
Rumo faces structural challenges despite record crop seasons. Declining corn exports, weak contracting, and pricing pressure raise concerns. These potential structural issues coupled with the risk of rising capex, increased regulatory compliance costs, and competition from road freight eroding margins and returns see us reduce positions with better risk/return opportunities in the road sector.
By contrast, Motiva and Ecorodovias look increasingly attractive. They are executing well on organic growth, margin expansion and capex deployment. In terms of future opportunities, both see significant scope to grow but are prioritizing asset rebalances over new auctions due to better returns. Neither party rules out an equity raise should growth opportunities present at attractive returns. Strong near term catalysts including operational execution, compensation payments, concession amendments, and strategic asset disposals.
Utilities Sector
Electricity
Brazil’s generation sector appears to be structurally broken due to oversupply of renewables, exacerbated by the current Distributed Generation (DG) model, and inadequate grid infrastructure leading to curtailment. Curtailment occurs at three levels: electrical, reliability, and energy with the majority of the risk born by the generator. Reform is needed urgently to prevent a collapse of the system. Negative on the renewable sector.
Transmission is stable and high margin, but competitive. Auctions are tight, and approvals are tiresome. Pure plays like TAESA, Alupar, and CTEEP are executing well but could face balance sheet constraints. Integrated players are capitalising on high transmission valuations to recycle capital to invest in distribution.
Distribution is the most attractive risk/reward sub-sector at these levels. Concession renewals are imminent, a new regulatory framework supports efficiency and quality, investment needs are high and deployment is supported by strong regulatory returns. Further sector M&A is possible with an anticipated Enel exit. We remain positive on the sector and expect increased exposure to Brazilian distribution as we re-weight the portfolio.
Water & Sanitation
A huge growth opportunity with core players capitalising and executing well in a regulatory environment rewarding execution. Any weakness on tariff discussion would be a buying opportunity.
Conclusion
This trip reaffirms our targeted conviction in investing in Latin America, supported by improving political and economic outlooks and strong infrastructure fundamentals. Mexican airports, Brazilian toll roads, and Brazilian power and water utilities are favoured. These areas are deserving of portfolio overweights.
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The content contained in this article represents the opinions of the authors. The authors may hold either long or short positions in securities of various companies discussed in the article. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely as an avenue for the authors to express their personal views on investing and for the entertainment of the reader.