Nearly 500 alleged MS-13 members are on a mass trial in El Salvador

The investable signal is not the trial itself but the institutionalization of exception-based governance. That tends to compress headline volatility in the short run, because markets often reward “order” even when it is coercive, but it raises medium-term sovereign risk: weaker rule-of-law increases the probability of arbitrary asset seizures, contract disputes, and policy surprise premia. For frontier-credit holders, the more important question is whether legal normalization stalls IMF-style reform credibility; if it does, external financing costs can drift higher even as domestic security metrics improve.

The second-order effect is on the labor market and nearshore narrative. A government that can deliver lower visible violence may sustain tourism, retail, and service consumption, but at the cost of reputational drag with multinationals that care about compliance, ESG, and judicial independence. That creates a bifurcation: domestic-facing businesses and state-aligned contractors can benefit, while FDI-sensitive sectors, especially those needing long-dated capex protection, may underwrite a higher risk premium or delay expansion decisions.

The contrarian mistake is assuming civil-rights backlash must immediately impair market pricing. In practice, authoritarian stabilization often trades well for months because the market discounts cash-flow visibility over process quality; the real downside comes later if mass detention produces staffing shortages, legal challenges, or international funding friction. The tail risk is a sudden external response — sanctions, aid conditionality, or multilateral financing scrutiny — which would matter more than local political noise and could hit sovereign spreads before it shows up in macro data.