SAO PAULO, Feb 27 (Reuters) - Principal Financial Group's asset management business is bullish on Latin American equities as interest rates come down and valuations remain at compelling levels in the region, a top executive told Reuters.

The company's portfolio for emerging markets has an "overweight" rating on Latin America, with Brazil being its favorite choice, counterbalancing an "underweight" position on China amid signs of weakness in the world's second-largest economy.

That makes the asset manager, which oversees $695 billion globally, the latest to have bets placed on Brazil, joining the likes of ETF provider Global X and Switzerland's Vontobel in their view of discounted local equity valuations.

"Going back 20 years, we find that Brazil has been cheaper only 14% of the time," said Todd Jablonski, Principal Asset Management's global head of multi-asset investing, despite a late 2023 rally that saw the benchmark Bovespa stock index hit record highs.

"Even though we have seen the valuations increase and the fundamentals look pretty good, we still see upside because the valuation remains below its long-term averages."

"If an investor 'underweights' China, you need a market big enough to hold that 'overweight.' And Brazil carries that feature," he noted.

Brazil's central bank started a monetary easing cycle in August after holding its key Selic interest rate at 13.75% for nearly a year to tame high inflation, and has so far delivered a total of 250 basis points of rate cuts.

Jablonski believes the central bank of Latin America's largest economy will continue cutting rates in 50-basis-point increments at its monetary policy meetings until getting the Selic rate to 8.5%, a view he acknowledged was "a bit more aggressive" than most market participants.

Principal's optimism also extends to Latin America as a whole, with Mexico being its second-favorite market, both on compelling valuations and the benefits of the "nearshoring" trend that is driving increased industrial investments there.

"Brazil, Mexico, Colombia, Peru all delivered very strong returns, greater than 30% U.S. dollar returns last year," Jablonski said. "And valuation is still attractive." (Reporting by Gabriel Araujo; Editing by Paul Simao)