Brazil Bulls Can Take Comfort in Options Markets

Investors are fleeing Brazil, yet options prices indicate that Latin America’s biggest economy should still be able to implement reforms that will benefit growth despite a corruption scandal that has ensnared President Michel Temer.

The benchmark Bovespa index of stocks slumped 8.8 percent following a May 18 report that Temer condoned a deal to pay the jailed former House Speaker Eduardo Cunha to not testify in the country’s biggest graft probe. The benchmark’s biggest one-day drop since the 2008 financial crisis came amid heightened uncertainty and concern that Temer’s implication in the scandal would prevent him from instituting a program of reforms considered critical to lifting Brazil out of a two-year downturn that saw the economy shrink 3 percent last year.