Brazilian stocks fell more than 10 percent in opening trade Thursday on an emerging scandal involving the country’s recently installed president.
Trading of some shares was delayed, Dow Jones reported.
The iShares MSCI Brazil Capped ETF (EWZ), a heavily-traded U.S. ETF that tracks Brazilian stocks, dropped more than 17 percent in the premarket.
Less than 10 months into the new administration, Brazilian Newspaper O Globo reported late Wednesday that Brazilian President Michel Temer gave his blessing to an attempt to pay a potential witness to remain silent in the country’s biggest-ever graft probe.
Temer told lawmakers Thursday that his government would not be toppled by allegations he was caught on tape trying to buy the silence of a potential witness in a sprawling graft investigation, a senator who was at the meeting told Reuters.
EWZ 5-day performance (extended hours)
O Globo’s report, which they say three sources familiar with the matter said was accurate, threatened to pull
“We believe the administration’s economic team is highly concerned the crisis will impact their reform agenda,” Larry McDonald wrote Thursday in “The Bear Traps Report” newsletter. “Equity prices / valuations are very dependent on completion / passage of these reforms.”
U.S.-listed shares of state-run Petrobras, Banco Bradesco, Vale SA, and Itau Unibanco also saw sharp drops in the premarket after O Globo reported the news.
The iShares MSCI Emerging Markets ETF (EEM) fell more than 2 percent in premarket trade.
Brazil makes up 7.43 percent of the MSCI Emerging Markets Index, as of April 28. China is the country with the greatest weighting, at 27.05 percent.
The Brazilian real fell more than 6 percent against the U.S. dollar Thursday morning.
Brazilian equities have surged over the past year, with the EWZ rising more than 45 percent in the period, as investors cheered
The new president and his promised reforms were supposed to turn the page on Brazil’s rocky political climate. Temer became leader of the country after President Dilma Rousseff was removed Aug. 31 amid a massive corruption scandal and an economic crisis that crippled Latin America’s largest country.
“Now the fear is that
Brazil had been an economic stalwart in the region just a few years before Rousseff’s impeachment, buoyed by surging oil prices. But the collapse
—Reuters contributed to this report.
Source : CNBC