Brazil ETF Halts Six-Day Advance as Corruption Scandal Expands

  • Lower house head allegedly used Swiss accounts to get kickback
  • Petrobras ADRs decline as local market closes for holiday

Brazil’s biggest exchange-traded fund fell, ending a six-day advance, after local media reported that an investigation into corruption at the state-controlled oil producer had grown to include kickbacks allegedly received by the head of the lower house.

The iShares MSCI Brazil Capped ETF slumped 2.2 percent in New York after the nation’s three largest newspapers reported that lawmaker Eduardo Cunha allegedly used accounts in Switzerland to receive kickbacks from a Petroleo Brasileiro SA contract in Africa. He denied any wrongdoing. Petrobras’s American depositary receipts sank 4.4 percent as oil declined. Local markets were closed for a holiday.

The reports added to the turmoil in Brazil’s already fractured political landscape, sending the country’s equities lower even as most stocks from developing nations gained Monday. President Dilma Rousseff is struggling to win support for austerity measures she says are needed to shore up the budget and stave off further cuts to the country’s credit rating. The Ibovespa is the worst performing major stock gauge this year in dollar terms as forecasts call for the country to post its longest recession since the 1930s.

“I always characterize the situation in Brazil as a Russian roulette with a fully-loaded pistol,” Juan Carlos Rodado, the director of Latin America research at Natixis North America LLC, said from New York. “We have a lot of domestic noise.”

The Ibovespa stock gauge extended a nine-day advance on Oct. 9 and the real climbed as the political debate over measures to revive the nation’s finances eased and speculation the U.S. will refrain from raising interest rates spurred an advance in emerging markets. A cabinet reshuffle spurred optimism the government was making progress on strengthening the country’s fiscal accounts.

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