Brazil Stocks Set to Crash Due to Political Scandal

Brazilian stocks were set to crash amid emerging scandal involving the country's recently elected president.

The iShares MSCI Brazil Capped ETF (EWZ), a heavily-traded U.S. ETF that tracks Brazilian stocks, crashed more than 17 percent in the premarket Thursday

Brazilian newspaper O Globo reported late Wednesday that Brazil Chief of State Michel Temer gave his blessing to an attempt to pay a potential witness to remain silent in the country's biggest-ever graft probe.

Temer's office acknowledged he had met in March with the businessman, Chairman Joesley Batista of meat giant JBS SA, but denied any part in alleged efforts to keep jailed former House Speaker Eduardo Cunha from testifying.

U.S.-listed shares of state-run Petrobras, Banco Bradesco, Vale SA, and Itau Unibanco also saw sharp drops in the premarket after O Globo reported the news.

The iShares MSCI Emerging Markets ETF (EEM) fell more than 2 percent in premarket trade.

Earlier, Brazilian equities have surged, with the EWZ rising more than 45 percent in the period, as investors cheered Temer's proposed economic policies. The fund is one of the 20 most actively-traded ETFs in the U.S. market on a daily basis, on average.

See more at CNBC.