Brazil to Tax Foreign Investors

[Cees Binkhorst]

REPLY TO: D66 at nic.surfnet.nl

Brazilie heeft dus geen trek in speculanten en wil zijn markt normaliseren.
Way-to-go ;)

Groet / Cees

http://www.usnews.com/money/blogs/Fund-Observer/2009/10/20/brazil-to-tax-foreign-investors.html
Brazil to Tax Foreign Investors
By Rob Silverblatt
Posted: October 20, 2009

With news Monday that Brazil will impose a tax on foreign purchases of its
debt and equity, stocks in the surging Latin American giant have taken a
sharp hit. This decline has tempered enthusiasm about the red-hot MSCI
Emerging Markets Index, which was up 73 percent year-to-date before
Tuesday's outflows from Brazil.

To get a sense of what the new 2 percent tax, which went into effect
Tuesday, means for investors with positions in Brazil, U.S. N ews spoke
with Josephine Jiménez, manager of the emerging markets fund Victoria
1522. In recent months, her fund has shifted a large chunk of its
portfolio into Brazil while dialing back its positions in China because of
concern about the country's efforts to slow loan growth. Currently, about
34 percent of the fund's assets are invested in Brazil.

Even with the new tax, which is similar to a 1.5 percent levy that Brazil
abandoned last year, Jiménez remains bullish about the Brazilian economy,
citing growth stemming from low interest rates. She is also enthusiastic
that high concentrations of minerals and strong banks will give Brazil and
other surging markets an edge in the foreseeable future.

How has the tax announcement affected your outlook for Brazil?

One should think of the long-term growth potential of the Brazilian
economy: The fact that interest rates have fallen significantly, that
banks are in an excellent position to finance economic growth because of
low loan-to-deposit ratios in the [country], and Brazil has the
demographics to support long-term economic growth, particularly in the
consumption area. And Brazil is rich in minerals, in natural resources,
and as the global economy recovers, Brazil is well positioned to recover
because of that. And so this does not change my opinion on Brazil. Brazil
used to have [a similar] transactions tax, and other emerging markets
countries also have the same taxation; sometimes they just call it a
value-added tax. So this is not unique to Brazil, but clearly the market
has reacted the way it has today in part [because of] some profit taking.
The Brazilian economy has done well, and so with the release of this news,
some investors have taken this as an opportunity to raise some cash.

What Brazilian companies do you favor?

I like the banks like Banco do Brasil [and I like] Petroleo Brasileiro.
And also we have Cosan, which is a player in the global sugar shortage.
It's a well-diversified portfolio. As you can imagine with 34 percent, the
stocks we own there are the stocks we love within the Brazilian economy.
For instance, there is a property and casualty insurance company called
Porto Seguro, and car sales in Brazil have been growing significantly. And
with the decline in interest rates, demand for residential and commercial
units has also been rising, and so that's good for the property and
casualty insurance [industry].

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