Brazil’s IBOVESPA equity index fell an eye-catching 3,155 points at one stage on Tuesday.
That, of course, amounted to a setback of just less than 5 per cent, taking the index down to 64,076 — Brazil’s high-five-figure corporate indicator being a hang-over from past bouts of hyper-inflation.
Brazil is fast dislocating itself from its past. Having fought capital flight for years, the battle now is against too much foreign money landing in the country.
Monday night’s move to slap a 2 per cent tax on all equity and fixed income investments by foreigners is being seen as just one measure by the local authorities to stem the inflation of bubbles in Brazilian assets. So the stock price correction seen in response must be a “good” thing in official Brazilian eyes, even if equity markets don’t like random taxes and investors don’t like losses.
While we have all been fixated by the liquidity-fueled rallies in New York and London, it has been easy to miss the truly breathtaking recoveries seen in certain emerging markets, Brazil included.
So, while the S&P500 is up 60 per cent from its March low, it is still 43 per cent below it’s peak. The IBOVESPA, on the other hand, can boast a near-perfect V-shaped recover from its May 2008 peak.
The immediate target of Brazil’s new levy was to stem the appreciation of the real against the US dollar, something finance minister Guido Mantega described as “threatening local companies.”
That is something no one believes will last.
Related links:
Brazil sets 2% tax on capital inflows – FT
Brazil is the 21st-century power to watch – Michael Skapinker