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Brazilian Stocks Plummet in Wake of Presidential Bribery Scandal

Madeleine Johnson

On Thursday, Brazil’s stock benchmark, the Bovespa, plunged over 10% immediately after opening, essentially wiping out all the gains it had accrued for the year after a developing political scandal involving the recently-elected president, Michel Temer, rocked the country.

While the Bovespa bounced back slightly, the index is still down about 7.3% as of 3:28 Brasilia Standard Time (BST). Bazil’s currency, the real, fell hard against the dollar as well, and is currently down about 6%; the real saw its worst day since the global financial crisis in 2008. Brazil’s central bank said it would monitor financial markets to make sure they keep functioning properly.

Brazil-focused ETFs tanked today. The largest U.S.-listed ETF that tracked Brazilian stocks, the iShares MSCI Brazil Capped ETF EWZ, is down 12.7% in late-afternoon trading, while other Brazil ETFs like the First Trust Brazil AlphaDex Fund FBZ, Van Eck Brazil Small-Cap ETF BRF, and the Direxion Daily Brazil Bull 3x Shares Fund BRZU were all down about 13%, 12.7%, and 39.8%, respectively, in the same time frame.

U.S.-listed shares of major Brazilian companies took a beating as well, with state-run oil giant Petrobras PBR down over 15%. Banking entity Banco Bradesco BBD fell more than 18% at one point today, while Vale S.A. VALE, a mining company, and Itau Unibanco ITUB were down about 5% and 15.8% in afternoon trading, respectively.

According to CNN, Brazilian newspaper O Globo reported Wednesday evening that Temer paid a bribe to Eduardo Cunha, the former House Speaker in Congress, to stay silent while Cunha is in prison. The newspaper also said that there were recordings of conversations between the two politicians proving the alleged bribe occurred.

As a result, Brazil’s top court has opened a probe on the President Temer. The president’s office has denied all allegations."President Michel Temer never requested any payments be made to former congressman Eduardo Cunha in exchange for his silence," according to a statement from the presidential palace.

Investors had high hopes for Temer, who served as vice president under former President Dilma Rousseff and was part of impeachment efforts against her in the wake of the country’s massive corruption scandal.

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