Brazilian stocks dropped 8.8 percent Thursday on an emerging scandal involving the country's recently installed president.
The Brazil Bovespa index recovered from an opening decline of more than 10 percent, but still logged its worst day since Oct. 22, 2008.
The iShares MSCI Brazil Capped ETF (EWZ), a heavily traded U.S. exchange-traded fund that tracks Brazilian stocks, closed 16.3 percent lower after earlier falling more than 18 percent. The ETF also posted its worst day since October 2008.
Less than 10 months into President Michel Temer
Brazil's top court opened a probe on Temer, Bloomberg reported in early Thursday afternoon trade, citing GloboNews.
Temer said Thursday afternoon that he will not resign and he will prove his innocence in the Supreme Court, according to a Reuters report.
"The moves in Brazilian assets this morning reflect a concern from investors that with these new political headlines
"Many local and foreign investors were positioned in Brazil with reform approvals as the base case, and thus had a
EWZ year-to-date performance
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
U.S.-listed shares of major Brazilian stocks plunged:
- State-run Petrobras dropped more than 15.4 percent.
- Banco Bradesco fell more than 13.4 percent.
- Vale SA recovered from a roughly 8 percent decline to close about 0.4 percent higher.
- Itau Unibanco fell 12.1 percent.
The iShares MSCI Emerging Markets ETF (EEM) closed off session lows, down 1.66 percent.
The Brazilian real fell more than 7.5 percent against the U.S. dollar Thursday.
The opening drop in the Brazilian stock market triggered a circuit breaker on the Bovespa exchange, Bloomberg reported.
Brazilian equities have surged over the past year, with the EWZ rising more than 45 percent in the period, as investors cheered
EWZ closed 19.7 percent below its 52-week high hit on Feb. 23, just shy of bear market territory.
"Brazil blows up every couple years," Tim Seymour, managing partner of Triogem Asset Management, said in an email. It "got overcrowded for regional dedicated players."
The country's stocks are about "8 percent of the EM index and taking EM down today more than it might," Seymour said. "That creates an opportunity but think about the politics across EM right now."
The new president and his promised reforms were supposed to turn the page on Brazil's rocky political climate.
"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
— CNBC's Gina Francolla and Reuters contributed to this report.