Brazilian ETFs Tumble As Its Government Makes A Decision To Impose A Tax On Foreign Fund Inflows Into Securities

“Brazilian stocks and the country’s currency tumbled Tuesday following the government’s decision to impose a tax on foreign fund inflows into securities, a move aimed at tamping down the surge in the markets. The Brazilian Finance Ministry late Monday imposed a 2% tax on foreign purchases of fixed-income securities and equities, effective Tuesday,” Carla Mozee Reports From MarketWatch.

Guido Mantega, Brazil’s finance minister, reportedly said that the government wants to reign in “speculative” investment and to “favor production.”

“This is the usual reaction coming from foreign investors, particularly, when they know that the government is trying to lift barriers on capital inflows,” said Alfredo Coutino, director of Latin American research at Moody’s Economy.com. “Every time a government imposes capital controls, investors overreact but then they forget about it.”

“In ETF action, the iShares MSCI Brazil Index (EWZ) closed with a 3.8% decline, clawing back from an intraday loss of more than 6%,” Mozee Reports.

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The investment (EWZ) seeks to provide investment results that correspond generally to the price and yield performance of publicly traded securities in the Brazilian market, as measured by the MSCI Brazil index. The fund normally invests at least 95% of assets in the securities of its underlying index and in ADRs based on the securities in its underlying index. It uses a representative sampling strategy to try to track the index. The index consists of stocks traded primarily on the Bolsa de Valores de So Paulo. It is nondiversified.

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