"Conservative wave" still flows with major Latam elections looming

Summary

Latin America's 2nd "Conservative Wave" remains intact as general elections in late 2025 and early 2026 resulted in right-leaning policy platforms being voted into office. Elections over the last few months add to a years long regional trend of voters opting for more conservative policy agendas, especially political platforms associated with tougher rule of law components. The latest election cycle, in our view, reduces regional political risk in the aggregate and improves political risk profiles of countries that have opted for more business-friendly administrations. Improved political risk reduces political risk premium, and in turn, allows for more long-term financial stability in Latin America.

But still looming are perhaps the most important elections for the region: congressional and presidential votes in Brazil and Colombia. Polls are mixed, and as of now, presidential candidates representing the left and the right sides of the political spectrum seemingly have equal chances of winning. For us, as well as corporates and investors alike, we do not have the luxury of waiting until elections are over to start planning. So in that sense, we offer a high-level scenario analysis for how presidential elections in Brazil and Colombia could unfold, what the policy priorities of each administration could be and how financial markets may react to either outcome. In short, we expect the political right to win in Colombia and Brazil, and for the Conservative Wave to broaden out to a few of the more economically important regional countries. Colombia's experiment with the left is likely to end, and we believe Lula peaked too early in Brazil's election cycle.

With that said, conviction in each election call is not high. Financial markets could turn volatile in the lead up to each election as candidates jockey for votes via fiscal stimulus and other populist-style actions. But could this volatility be temporary should a shift to the right unfold? Or, could Colombia and Brazil go against the regional grain, double down on the left and have political risk premiums be embedded in local financial markets for longer? Time will tell, and we will provide updates on our election scenarios over the course of each election cycle, especially if our views materially change.

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