Executive Summary
- A more interventionist and unilateral U.S. foreign policy is reshaping Latin America’s geopolitical and economic backdrop. The Donroe Doctrine uses tariffs, sanctions, and selective interventions to counter rival powers and secure strategic resources. It increases geopolitical noise and idiosyncratic risk, which in turn can reinforces the rotation from U.S. exposure into EM assets.
- Regional dispersion is widening as countries absorb U.S. pressure differently. Venezuela remains the most direct intervention, while Brazil, Colombia, and Mexico face selective friction. The particularities of each country generate differentiated sovereign and corporate risk profiles and opportunities.
- For investors, this backdrop can create both volatility and opportunities across EM credits. EM FX strength supports healthy EM growth and investment, while geopolitical episodes can drive spread dispersion. Distressed situations like Venezuela provide optionality, whereas more liquid markets such as Brazil, Colombia, Mexico, may offer attractive entry points following geopolitically driven volatility.
- Global fixed income investors question the appeal of US bonds as sources of stability and continue to increasingly look for diversification opportunities particularly within Emerging Markets as evidences by strong inflows into the asset class
Background
Initially branded the “Trump Corollary,” the administration later adopted the term “Donroe Doctrine” coined by the press. Predicated on “America First” principles, Donroe seeks to prevent economic and political influence from other global powers—particularly China, Russia, and Iran. The policy leverages economic mechanisms to shape political outcomes, advance government and corporate interests, and secure access to strategically important locations..
Interventions
The National Security Strategy emphasized that the U.S. “cannot afford to be equally attentive to every region and every problem in the world” and brought the Americas to the forefront. It seeks to enlist regional players, advancing shared interests and rewarding aligned governments, parties and movements; and expand new relationships.
While strategic pillars were voiced during the campaign, the first tangible actions came in 2025 with tariffs and sanctions, and surged by military campaigns in Venezuela. These events exemplify some of the levers of U.S. action within the spectrum of this policy, implemented in the name of commercial, immigration, and defense interests. Beyond potential escalation, unpredictability in timing and scope alone increases geopolitical noise and investment risk.
Venezuela
Nicolás Maduro led a longstanding authoritarian regime and refused to negotiate with the White House. Motivated by the fighting drug trafficking, the U.S. launched a military operation to capture him, now awaiting trial in Brooklyn jail. Efforts then shifted to stabilizing a regime led by Delcy Rodríguez, who has cooperated to advance U.S. interests. The market participants believe that Venezuela’s large oil reserves (world’s largest proven oil reserves, over 303 million barrels, source EIA) and other resources are central to establishing “closer collaboration between the U.S. Government and the American private sector” across the continent. Both parties now work to create assurances for long-term investments in outdated infrastructure to extract heavy crude oil. The intervention also targeted historical allies, severing ties between Venezuela and Cuba, including blocking oil supplies and cracking down on shared intelligence.
Brazil and Colombia
The presidents of Brazil and Colombia were vocal critics of Liberation Day tariffs and the Venezuela intervention. The diplomatic dialogue eased once dialogue opened: Lula is negotiating potential tariff reversal and Colombia’s Petro abated pressure with the promise of a White House visit. Despite commercial pressure and targeted sanctions, Brazil retains leverage. Albeit a net importer of U.S. goods and services, it depends less on U.S. purchases (~10% of exports) and supplies key products in American consumer baskets. Investors believe that the U.S. can be particularly interested in Brazil’s rare earth deposits and reserves of critical minerals.
Source: IVO Capital Partners
Elections in “Donroe Era”
In addition to the recent increase in geopolitical risks brought by “Donroe doctrine”, Latin America is also looking at a busy 2026 election calendar, highlighted by the Brazilian general elections. Market-favored administrations have emerged in Chile and Argentina, but leftist parties remain strong in other large economies. U.S. interventions may have influenced outcomes in Argentina and Honduras, while tariffs improved approval ratings in Brazil and Colombia, raising questions about overt actions’ effectiveness ahead of elections.
- Brazil: the presidential ballot is expected crystalize further around April, which could lead to market volatility. A close race is expected, with polls showing Lula favored over Flávio Bolsonaro, the eldest son of the imprisoned ex-president. Another candidate from the right could enter the race or make a run for the main right-wing spot.
- Colombia: Petro’s party leads polls with senator Ivan Cepeda, but right-wing candidates like outsider Abelardo De La Espriella are considered competitive and even favorites by some political experts.
- Peru: Under an interim presidency after repeat impeachments, the presidential polls are still fairly fragmented, led by confrontational right-wing Rafael Lopez Aliaga and center-right Keiko Fujimori (daughter of former president Alberto, going to her fourth presidential bid).
Investment Opportunities
The new approach in Western Hemisphere relations reflects a broader stance against transnationalism, favoring bilateral agreements and defending national interests. In investors’ minds, a continuation of a gradual trend can increase uncertainty and accelerate rotation from US risk assets. The appreciation of EM currencies vis-à-vis the dollar bodes well for corporates with hard currency debt.
Although specific countries or sectors may be directly targeted like Venezuela, other countries like Mexico and Brazil face selective pressure and few are rewarded as Argentina. That uneven pressure creates meaningful dispersion in sovereign and corporate risk, demanding effective risk management while providing entry opportunities. Venezuela offers limited investment vehicles in the sovereign debt and PDVSA, which recently outperformed but still trade at distressed levels amid the protracted default and uncertainty around recovery values. The country’s defaulted obligations trade at approximately $35-45 while the oil company’s unsecured bonds range between $33-42. The corporate bond universe is more robust in Brazil, Colombia and Mexico, where volatility to US actions have been more contained after the recovery from the Liberation Day selloff, and valuation been more driven by country- and/or industry-specific factors. Brazilian corporates now lead the region with 7.6% yield post the recent selloff in HY, while Colombia has compressed to 7.3% and Mexico has been stable at 5.9%. For more details on Argentina (7.5%ytw), please refer to our note in October/2025
Brazil spreads in 2025 were largely impacted by US policies and idiosyncratic cases
Source: IVO Capital Partners
Conclusion
Geographical proximity and abundant natural resources place Latin America as a key region for US foreign policy. Even though specific targets may be subject to direct intervention or bilateral negotiations, the broader impacts of geopolitics will be important drivers for investment flows to or from the region. With a more unpredictable US government, higher volatility can be expected in both country-specific and global markets. This scenario favors the trend of a weaker dollar and adjustments of allocation based on newly perceived risks.
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