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Investing.com -- UBS has identified the Brazilian real (BRL) as its preferred long position in Latin America, citing the currency’s cheap valuations and high carry. The bank is positioning long BRL against the Mexican peso (MXN) or Colombian peso (COP).
UBS analysts believe the Brazilian real could see improvement in the second half of the year due to balance of payments gains amid slowing demand and strong agricultural exports. The 2026 elections could also provide potential upside for the real due to better macroeconomic outcomes.
The bank is also long January 2027 bonds, noting very little easing is priced in for 2026 as UBS expects growth and inflation to ease in the second half. This outlook depends on fiscal risks remaining contained, with the next bimonthly fiscal report due on Monday.
For Mexico, UBS sees the peso’s cyclical and policy risks as mispriced, with the USMCA review starting in September. However, the bank has stronger conviction in Mexican rates declining and maintains a long position in 5-year rates.
The Colombian peso is UBS’s preferred short in Latin America, citing weak fundamentals, peaking central bank hawkishness with cuts expected to resume on July 31, and potential outflows following recent credit downgrades. Investors should watch the IMF’s decision on the Flexible Credit Line in the coming weeks.
UBS noted that potential USD sales from the Treasury to markets for up to $5 billion over the summer could mitigate some pressure on the Colombian peso, but analysts see limited support unless this flow is concentrated.
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