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FX: Brazil imposes foreign investment tax

This story was first published on theweeklyFiX, for more details please click here

Brazil’s decision to impose a 2% tax on fresh foreign investments in equities and fixed instruments on October 20 had the expected result and the Brazilian real came under quite strong selling pressure. The fact that the government is taking such action shows just how far many of the emerging markets have developed. A source close to the BM&F Bovespa, the country’s securities, commodities and futures exchange, says that the move is aimed as much at domestic investors repatriating money as at foreigners.

Paul Day, chief market analyst at MIG Investments, postulates that other countries will watch closely the impact of the Brazilian move. "This could be quite a nice test case for many regulators across the globe," he says. "This is similar in many ways to proposals suggested in South Korea regarding imposing a fee for trading Kospi futures... [but] many trading activities from overseas investors could easily be diverted to more accommodative regulatory regimes should what are perceived as punitive trading fees be imposed."

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