Brazil ETFs Crumble Under Latest Scandal

May 18, 2017

So much for forging a bottom in emerging markets.

Brazil, one of the largest developing economies, and the “B” in “BRIC” [Brazil, Russia, India, China], suddenly took a nose dive Thursday following news that its president might be directly involved in an ongoing corruption scandal.

The country’s leading stock market, Bovespa, plummeted some 10% in early trade, extending losses as the morning went on. In the U.S., a fund like the iShares MSCI Brazil Capped ETF (EWZ)—the largest Brazil ETF, with $5.8 billion in assets—was faced with a startling dip in performance, dropping some 16% Thursday morning.

EWZ is now down for the year, as the chart below shows:  

 

 

New Corruption Case

The latest news connects President Michel Temer with an effort to silence a crucial witness in a corruption case. This effort, which allegedly was caught on tape, also involves a key senator that some expected would run for president in the next election.

It’s yet another case of the mighty falling.

Brazil was still healing from a scarring impeachment process that ousted its elected President Dilma Rousseff last summer, and this time, it sent investors running for the doors. A troubled Temer is less likely to effectively implement much-needed reforms the market was looking for.

 

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