The Brazilian stock market index plummeted 10 percent shortly after opening on Thursday, the biggest drop since the 2008 financial crisis. Trading was halted for an hour.
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The decline washed 26 billion real ($7.7 billion) off the market values of Brazilian Banco Itaú and petroleum giant Petrobras.
“Brazilian stocks and assets and their currency have rallied very strongly up until really today. It’s a big pullback, and it at least brings the risk up to the surface again,” said Alliance Bernstein Managing Director of Equity Product Management Eric Sprow, as quoted by Reuters.
The Brazilian currency plunged eight percent to 3.38 against the US dollar, the real’s lowest level in five months. At the same time, the yield on the country’s 10-year dollar bond swelled almost nearly 53 basis points to a two-month high of five percent.
The sharp declines were reportedly triggered by fresh allegations of President Michel Temer’s involvement in the unfolding bribery scandal.
On Wednesday, local media reported the president had been recorded endorsing the bribery of a key figure in the so-called Lava Jato scandal, which covered big sectors of Brazil’s business and political leadership.
Operation Lava Jato is a probe into allegations of corruption at the state-controlled oil company Petrobras.
President Temer has denied the allegations and refused to resign.
Economists at UBS Securities and JPMorgan Securities downgraded recommendations on Brazil’s equities to ‘neutral’ amid substantial risks that ambitious pension and labor reforms wouldn’t be immediately implemented.
“For the market, it’s not a question of whether Temer will be ousted or not. The question is whether it will be quick and for how long reforms will be delayed,” said Thiago Castellan, a trader at Sao Paulo-based Renascenca brokerage.
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