Bet on LatAm Currencies: Contrarian Resilience in EM FX Amid Middle East Turmoil

The Middle East's Iran-Israel conflict has triggered a wave of risk-off sentiment, sending emerging market currencies reeling. Yet beneath the surface, Latin American currencies—Colombian peso (COP), Peruvian sol (PEN), and Argentine peso (ARS)—are poised for a comeback. Despite near-term dips, their structural underpinnings—cheap valuations, dollar weakness, and region-specific tailwinds—make them compelling contrarian buys. Here's why investors should accumulate positions now, even as geopolitical storms loom.

Colombia's COP: Policy Risks vs. Undervaluation

Colombia's central bank cut its benchmark rate to 9.25% in April 2025, resuming its easing cycle after a prolonged pause. While this signals economic caution—growth projections for 2025 were trimmed to 2.6%—the COP remains historically undervalued. shows the currency trades at a 15% discount to its fair value. With the U.S. dollar weakening on Fed easing bets, COP could rebound sharply. Though political risks linger—President Petro's pro-growth agenda may clash with fiscal constraints—the COP's cheapness and dollar dynamics justify a long position.

Mexico's PEN (MXN): Hurricane Setbacks, But Dollar Weakness to the Rescue

Mexico's peso (MXN) tumbled to 20.88 USD/MXN by late 2024, partly due to Hurricane Otis's toll on Guerrero state tourism and GDP. However, the currency's fundamentals remain robust. reveals a 19% depreciation, but this overshoots economic reality. With dollar weakness intensifying and Mexico's current account deficit narrowing to 0.6% of GDP, the MXN is primed for a rebound. The government's fiscal consolidation efforts—including reduced public spending and tax reforms—add credibility. Short-term volatility from geopolitical spillover is overdone; Mexico's structural stability supports a buy.

Argentina's ARS: MSCI EM Reclassification Catalyst

Argentina's ARS is the ultimate contrarian play. After years of capital controls, President Milei's reforms—including lifting dollar restrictions in April 2025—set the stage for a potential upgrade to the MSCI Emerging Markets Index in June. highlights its 40% undervaluation. A successful reclassification would unlock $1 billion in passive inflows, boosting liquidity and credibility. While inflation remains a hurdle, it has slowed to 2.8% monthly, and fiscal discipline (nine consecutive surpluses) reinforces investor confidence. This is a “buy the dip” opportunity ahead of the June decision.

Geopolitical Risks? Overblown—Dollar Weakness and Region-Specific Drivers Prevail

The Middle East conflict has fueled dollar rallies, but this trend is waning. Fed rate cuts, a weakening U.S. economy, and global growth divergence favor LatAm. Meanwhile, region-specific factors—Colombia's rate cuts, Mexico's fiscal discipline, Argentina's MSCI hopeful—are catalysts. Even as headlines swirl, these currencies are anchored by three unshakable pillars:
1. Valuations: COP, MXN, and ARS trade at multiyear lows relative to fundamentals.
2. Dollar Dynamics: A weaker USD reduces external debt burdens and boosts commodity exporters.
3. MSCI Catalyst: Argentina's upgrade could trigger a regional re-rating, benefiting all three currencies.

Investment Strategy: Accumulate Now, But Hedge Volatility

Buy the dips: Use short-term weakness from geopolitical fears to layer into COP, MXN, and ARS.
Target entry points:
- COP: Below 4,000 COP/USD (current ~3,800).
- MXN: Below 20.5 MXN/USD (current ~20.3).
- ARS: Below 300 ARS/USD (current ~285).
Hedge with options: Use put options to protect against further Middle East escalation.

Avoid: Overly leveraged EM FX strategies; stick to region-specific plays.

Conclusion: The Time to Act Is Now

LatAm currencies are caught in a geopolitical storm, but their structural resilience is undeniable. With MSCI's June decision a key inflection point and dollar tailwinds building, this is a rare opportunity to buy cheap, fundamentally sound assets. The risks are priced in—now is the time to bet on recovery.

Final Call: Accumulate COP, MXN, and ARS via ETFs like Latin America Currency ETF (CLN) or direct FX pairs, while maintaining a 10% allocation to U.S. Treasuries for volatility protection. The payoff could be extraordinary.