Core Insights - Emerging market currencies are performing well, particularly in Latin America, with the Brazilian real returning 4.5% in 2026 and the Mexican peso returning 4.3% [2][12] - Carry trades, which involve borrowing in lower-yielding currencies to invest in higher-yielding ones, are up 1.3% this year, building on last year's 18% rally [12] - High real interest rates in developing countries are supporting carry strategies, as many central banks maintain tight monetary policies despite slowing inflation [12] Latin American Currencies - The Brazilian real has seen a significant return of 4.5% in 2026, following a 23.5% return last year, with interest rates at 15% [2][12] - The Mexican peso's carry trade has also performed well, returning 4.3% this year, with Deutsche Bank maintaining a bullish outlook [2][12] - Citi strategists recommend buying the Brazilian real against the dollar and also favor the Turkish lira [3] Underperforming Currencies - The Indian rupee, which was the worst performer last year, is down about 2% in carry terms this year [4] - The Indonesian rupiah has also resulted in losses for investors [5] Market Conditions and Predictions - The record for carry strategies was in 2003 with a 25% return, but current conditions require the dollar to weaken further and emerging currency volatility to remain low [9][12] - BofA strategist Alex Cohen suggests that carry trades will continue to outperform if volatility remains suppressed, although geopolitical risks could pose challenges [10][11]

Group 1: Market Performance - Mexican financial assets are experiencing one of their strongest years in decades, significantly outperforming Wall Street benchmarks [1] - The iShares Mexico ETF surged more than 50% year to date, marking its best year since 1999, while major U.S. benchmarks like the Vanguard S&P 500 ETF gained roughly 17% [2] - The Mexican peso appreciated by over 14% against the U.S. dollar, on track for its best annual performance since 1993 [3] Group 2: Monetary Policy Impact - The Bank of Mexico (Banxico) has cut interest rates by 300 basis points since the start of the year, reducing the policy rate to 7%, which has supported asset prices and investor confidence [4] - The aggressive monetary easing has helped offset trade-related uncertainties and injected liquidity into the economy [4] Group 3: Individual Stock Performance - Several individual stocks in Mexico have shown remarkable returns, with Industrias Peñoles S.A. de C.V. surging over 260%, Gentera SAB DE CV climbing over 100%, and both CEMEX SAB DE CV and Grupo México SAB DE CV rising more than 80% [5] Group 4: Economic Context - Despite the booming markets, Mexico's underlying economy is contracting, with GDP falling 0.2% in the third quarter after flat growth in the second quarter [7] - Banxico has revised its 2025 growth outlook down to 0.3%, projecting a gradual rebound to 1.1% in 2026 and 2% in 2027, indicating fragile near-term economic momentum [7]