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 The Brazilian financial market reacted swiftly and negatively to the news that the Brazil government will impose a 2% tax on foreign investors buying stocks in the country. The Bovespa (São Paulo stock market) fell 2.88 this Tuesday, October 20, its worst performance since June 22.
Despite the decline the Bovespa is still 74% up for the year though. The market closed at a still healthy 65,303 points.
On the other hand, the dollar, which was consistently falling against the Brazilian real, had a 1.86% surge with the real ending at 1,745 per dollar. During the trading session, the Ibovespa, the Brazilian market's main index declined as much as 4.7%.
All the 63 stocks that comprise the Ibovespa closed in the red. The selling fever resulted in a volume of 8.92 billion reais (US$ 5.2 billion) traded, a number 80% higher than this year's average. Some analysts believe that the new tax will drive away a few overseas investors. Foreigners represent 35% of the Bovespa's transactions.
The Tax on Financial Operations (IOF) to be levied against foreigners was announced Monday by Brazilian Finance minister, Guido Mantega. The announcement wasn't a surprise - the government had been warning that it would take this measure during the past week - but it still caused enough of a shock to scare some overseas investors.
Among the most affected companies, all of them part of the Ibovespa, were Petrobras, whose stocks fell 2.30% to 36.50 reais; Vale (2.17% down to 40.50 reais); Itaú Unibanco (fell 1.94%, to 36.30 reais); Bradesco's (lost 2.51% to 36 reais).
The weak performance of commodities and that of the New York Stock Exchange, plus very bad numbers for the Yankee economy contributed to the let-us-get-our-money-and-run feeling in the Bovespa.
What the market wants to know, however, is whether foreigners are going to abandon the Brazilian market. Several analysts believe that in spite of the tax, Brazil is still a good place to make money in the stock market. And they all seem to agree that the dollar will continue its free fall due to global forces pressuring the American currency. On October 15, Brazil's international reserves were over US$ 232 billion.
Tuesday's trading session was very atypical for the Brazilian bullish market, which seems to know only the way up for the last four months.
For Rodrigo Silveira, operations manager at UM Investimentos, the 2% tax was just a trigger, an excuse for a readjustment that the market was already expecting for some time.
"This was a natural reaction and not surprising at all." He stressed that the Bovespa is still over the 65,000 points line and that stocks have accumulated gains of 74% in 2009.
He thinks foreigners will continue investing since, according to him, 2% make little difference for the long term investor. The problem, he says, is with the speculative capital. It will take a few days before the market can digest the news.
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