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Bovespa joins Brazilian market rout, plunges 10% at open

What’s the Portuguese for ‘tin hats on’?

Brazilian assets are selling off like it’s 2015 again, with the Bovespa stock index plummeting more than 10 per cent on Thursday, triggering circuit breaker limits, following new bombshell allegations that the country’s president Michel Temer had discussed buying a colleague’s silence over corruption investigations.

The allegations, reported overnight by one of Brazil’s biggest newspapers, threaten to derail Mr Temer’s young and deeply unpopular government and jeopardise the series of reforms that he has been trying to push through.

The dramatic drop in the Bovespa on Thursday was enough to nearly wipe out all of the index’s gain for the year.

The sell-off was not limited to just stocks, which up until today have been one of the world’s top performers after having risen by more than a third over the past year.

The Brazil real also took a beating, plunging 8.5 per cent to a five month low of R$3.4049 per dollar while yield on the country’s 10 year dollar bond surged nearly 53 basis points to a two month high of 5 per cent.

Brazil ETFs – including the $5.7bn iShares MSCI Brazil Capped ETF and VanEck Vectors Brazil Small-Cap ETF – tumbled 16 per cent and 14 per cent respectively.

“The consequences for Brazil could be wide-ranging,” said Craig Botham, Emerging Markets Economist at Schroders.Pension and labour market reforms, the former particularly key, could both be under threat.”

“Nor is it just equity markets that could take a hit,” he added. “Economic confidence had been on the rise in Brazil following the removal of former President Dilma, and this appeared to have led to a tentative recovery in economic activity. This could now surely be at risk.”