Brazil's latest political scandal crushed its stock market and rippled across financial markets, including to the U.S.-traded shares of Brazilian and some U.S. companies with exposure to the South American country.
President Michel Temer, who replaced ousted President Dilma Rousseff, was reported to have been recorded negotiating a bribe to win the silence of ex-House Speaker Eduardo Cunha. The news report cast in doubt not only the economic reforms proposed by Temer, but also his tenure in office. Temer was also reported to be under investigation by the country's top court.
Citigroup economists said Thursday that if Temer were ousted, it would have negative implications for the Brazilian economy. His social security reform would be in jeopardy, and if he is removed, there would be an indirect election in two months. Citi had expected interest-rate cuts by the Brazilian Central Bank due to a decline in inflation, but that could be in doubt.
"At this point, despite being extremely hard to assess not only the magnitude of this shock on macroeconomic variables but also its temporal dimension, it definitely has the potential power of being a game change," they noted. That makes the future also cloudy for companies that do business there.
Goldman Sachs identified companies with significant revenue exposure to Brazil.