Brazilian Stocks Stop Bleeding and Get Slight Jump

Brazil's Bovespa After a gray Tuesday, which saw the Brazilian stock suffer its worst tumble in four months, the Bovespa, São Paulo's Stock Market showed some light recovery with the Ibovespa, the Bovespa's main index going up 0.28%. The fall the previous day had been of 2.88%. The market closed this Wednesday at 65,485 points.

The main responsible for the upswing was the great performance of companies linked to raw material, like Petrobras and Vale.

Investors are now attentive to the decision to be taken later today by the Copom, Brazil's Monetary Policy Committee, which is expected to announce the new Selic, Brazil's basic rate of interest.

On Tuesday, Brazil's stock market suffered one of its worst one-day plunges and the currency sank after the government imposed a tax on foreign investments in local stocks and bonds. The Bovespa dropped 2.88% to 65,303.11, after closing at its strongest level since June 2008 the previous session.

The decline in the index was the biggest since it lost 2.5% on August 17. The real meantime slid 2.1% to 1.7547 per dollar, the lowest in two weeks.

Finance Minister Guido Mantega announced Monday the government would charge a 2% financial transactions tax on foreign investments in Brazilian stocks and fixed-income securities in a bid to prevent the country's currency from strengthening further.

But Bovespa also announced plans to press the Brazilian government for alternative ways to curb gains in the currency. The levy, higher than a 1.5% tax scrapped a year ago that didn't cover stocks, will hurt Brazilian investors and small- and medium-sized companies, according to Carlos Kawall, chief financial officer of Sao Paulo-based BM&FBovespa.

"We need to do everything we can from now on, talking to the government, getting support from everyone who sees that this is something that is definitely faulty and could be altered," Kawall, a former Treasury Secretary who served under Mantega in 2006, said during a conference call.

International investors, who account for about a third of Bovespa's stock trading, will likely buy US depositary receipts, punishing smaller Brazilian companies who can't afford the costs of listing overseas, Kawall said. The fact that money raised through ADRs is seen as direct investment and isn't taxed, while local capital raising will be subject to the levy, is one of the "inconsistencies" in the regulation, he said.

Mantega said on Monday that the measure seeks to curb gains in the Real, which has strengthened the most of any major currency this year on the back of higher commodity prices, a credit rating upgrade from Moody's Investors Service and forecasts for faster economic growth.

The tax will reduce the efficiency of Brazil's capital markets and "divert" money needed to finance the country's economic growth, according to a statement signed by BM&FBovespa and groups representing Brazil's pension funds, publicly traded companies and investment banking industry.

"So who gets hurt? We get hurt and that's what markets are suggesting today," Kawall said on yesterday's call. "Local small- and medium-cap companies get hurt because they cannot deal with the cost of issuing ADRs. The local investor gets hurt because they might have less liquidity here over time if this measure prevails".

Bzz/Mercopress

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