LatAm: Energy-led rotation and AI shift – BNY

BNY’s Bob Savage highlights that South American equities are being driven by commodity inflows, with energy holdings sharply above historical averages as investors use the region as a hedge against war-related supply shocks. At the same time, structural themes such as AI infrastructure, fintech expansion and data centers in Brazil and Chile are expected to support banking, retail and education sectors over the coming years.

Energy spike contrasts with tech underweights

"LatAm’s energy holdings spike started in January with the surprise U.S. action in Venezuela; it continues with the war in Iran. If peace talks lead to a sustainable deal to reopen the Strait of Hormuz, the risk for the region is in the unwind of energy as a safe-haven equity. Unlike the U.S. markets, where IT has held up against war inflation shocks, the LatAm region has seen a pullback in IT holdings."

"The spike in energy is notable – 50% over the three-year average in the span of five months. In comparison, materials are just 25% over the three-year average, while IT is 15% below. Markets are treating LatAm equities as a commodity hedge against war-driven supply shortages, even as real rates weigh on broader growth."

"Regional dynamics rest on demographics: the population is growing 0.6% y/y, and the average age is 31. Savings rates are rising, and urbanization is accelerating the shift from agriculture toward manufacturing and services. Banking, retail and education remain key growth industries, and AI will play a critical role in their profitability and productivity."

"Chile and Brazil are driving the region’s data center expansion – from roughly 300 today to 400 by mid-2027. Beyond U.S. hyperscalers, the tech ecosystem pushing for this growth includes MercadoLibre, Globant, TOTVS, Nubank and Rappi. Cloud services are in demand, and fintech innovation is thriving across the region."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)