Fund buyers have said Brazil still presents an attractive opportunity for investors, despite recent political turmoil threatening to derail its recovery.
On 18 May, it was reported by Brazilian newspaper O Globo that new President Michel Temer had given his support to an attempt to buy the silence of a former coalition ally; allegations he vehemently denies.
On the news, the Brazilian Bovespa index dropped 10% on opening and trading was halted for 30 minutes while the real fell 7% against the US dollar, the most since 1999, as fears grew Temer could be impeached and his reform agenda threatened.
Meanwhile, the premium investors demanded to own Brazil's sovereign bonds rather than US Treasuries jumped the most since June 2013, according to Bloomberg.
Markets have since rebounded and investor sentiment towards Brazil appears resilient as TrackInsight data, which covers 70% of the total ETF market, reveals inflows into Brazilian equity ETFs of €534m over three days to 23 May.
Strong fundamentals
However, managers have said investors could use future bouts of market volatility caused by the developing corruption scandal to their advantage, as fundamentals remain strong for Latin America's largest economy.
Pat Bradley, senior vice president, investment research at Brandywine Global, said he would only reconsider current investments in Brazil if the country's fundamentals deteriorate.
"Given the information we have at this juncture, we do not plan to change our exposure to Brazil.
"Real rates remain attractive in the country, and we are comfortable with being compensated to wait for volatility to subside. A knee-jerk reaction is not prudent nor part of our investment process."
Currencies, countries and sectors: Taking apart the emerging markets rally
Simon Wood, head of manager research at Aberdeen Asset Management, holds the Old Mutual Global Emerging Markets fund which invests in Brazil, but he said the portfolio's quality bias provides some protection.
"We have not been as badly affected as others may well have been. They [the fund's managers] had the feeling Brazil looked a little overvalued so they had exposure of 4.9%, which is 3.2% underweight the benchmark.
"We are not panicking at this stage as the fund we have will hold up well as it has a quality bias, so we are not particularly concerned about [the events]."
Long-term prospects
Meanwhile, Sudhir Roc-Sennett, senior portfolio adviser at Vontobel Asset Management, said despite holding 11% of its Emerging Markets Equity fund in Brazil, he has no plans to change his exposure as there has been no news so far which damages the long-term growth prospects of companies in the portfolio.
He said: "Each of our six Brazilian holdings is driven by different factors with a long runway of growth forecasts ahead.
"We look for red flags such as the potential for sharp changes in regulation or tax structures, as these can damage the long-term profit growth of even the best operator.
"However, we do not see anything to suggest this might be the direction Brazil is heading towards at this moment."
