New Brazilian Investor Tax Not Really Bad News

Headlines around today’s announcement that Brazil is extending its 6% tax on foreign purchases of local bonds may look bearish, but the real news is not so bad.

The IOF tax on corporate and bank debt sold outside Brazil really has a bigger effect on locals who were borrowing in dollars more than it does on those selling dollars to buy real-denominated bonds.

This will have some impact on the pressure that is currently driving the real back up to levels higher than the Brazilian government likes. But this is not really where the finance ministry is going to get results.

In fact, while the market was expecting something from the Brazilian authorities, this may actually be on the softer side of things.

Brazil continues to underperform the rest of the emerging markets, but has come back to actually be the best-performing Latin market so far this year. Yes, the iShares MSCI Brazil Index ETF (NYSE:EWZ) is ahead of even the top performers of yesteryear like Global X FTSE Colombia 20 ETF (NYSE:GXG):

Stay with the banks and domestic stocks that have already priced in a lot of the current wave of inflation concerns.

And if you have been enjoying the carry trade between dollars and reais, the big banks expect that action to continue. On the ETF side, the name here is the WisdomTree Dreyfus Brazilian Real ETF (NYSE:BZF).

Written By Tim Seymour From Emerging Money

Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.

About Tim Seymour: Tim is a founder of Emerging Money. He is a founder and Managing Partner at Seygem Asset Management, and The Emerging Markets Contributor to CNBC. Seygem Asset Management focuses on investing throughout the global emerging markets asset class. With a view that emerging and developing economies will continue to outpace the economic growth and advancement of developed economies, Seymour has devoted a career to investing in the dominant markets of tomorrow, today. Seymour’s career has included significant experience in both alternative asset management (hedge funds) and capital markets, having launched two hedge funds, and built the largest Russian broker dealer in the USA. Seymour started his career at UBS, focusing on international credit (cash, swaps, forex) in a specialized hedge fund group (New York). Seymour completed the firm’s training program after graduating with an MBA in international finance from Fordham University. Seymour received his undergraduate degree at Georgetown University.

Leave a Reply

Your email address will not be published. Required fields are marked *