Brazilian politicians just cannot seem to get out of their own way when it comes to corruption. On Wednesday, the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) traded slightly lower following news of a Brazilian Supreme Court justice authorizing a new corruption probe into President Michel Temer’s dealings regarding regulations of Brazilian ports.
EWZ, the largest exchange traded fund tracking stocks in Latin America’s largest economy, is still up about 27% year-to-date.
Earlier this year, federal police carried out search and arrest warrants throughout the capital in response to O Globo reports on leaked testimony indicating that Temer approved payoffs to acquire the silence of Eduardo Cunha, the man behind last year’s ouster of former president Dilma Rousseff. Recently, Brazilian President Michel Temer survived an effort to suspend him on corruption allegations.
“The new investigation is based on a wiretapped conversation of a former Temer aide, Rodrigo Rocha Loures, who, according to court documents, discussed shaping the decree in return for bribes channeled from a port operator to the president,” reports Reuters.
Brazil is one of the more volatile emerging markets, but some investors believe Brazilian equities still offer upside potential. EWZ’s three-year standard deviation is 36.7%, more than double the comparable metric on the MSCI Emerging Markets Index. Stocks in Brazil are inexpensive based CAPE, price-to-earnings and price-to-book ratios.
“In his ruling, Justice Luis Roberto Barroso said the new probe was warranted because Brazil’s top prosecutor, Rodrigo Janot, had found ‘strong indications’ of crimes, given that the decree signed by Temer answered part of the demands made by logistics firm Rodrimar SA,” according to Reuters.
Earlier this year, former Brazilian President Luiz Inacio Lula da Silva was convicted on corruption charges. It was corruption allegations that were the undoing of former President Dilma Rousseff and ultimately forced her impeachment. The current administration is being stung by the new corruption investigation. Rousseff was selected by Lula to be his successor and she presided over one of Brazil’s worst recessions.
Traders who are betting on a quick turnaround could look to the two times leveraged ProShares Ultra MSCI Brazil (NYSEArca: UBR) or the three times leveraged Direxion Daily Brazil Bull 3x Shares (NYSEArca: BRZU). On Wednesday, BRZU was the best-performing US-listed ETF on an intraday basis.
For more information on the Brazilian markets, visit our Brazil category.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.