Bloomberg News

Bovespa Rises to Two-Week High as Stock Purchase Tax Suspended

December 02, 2011

Dec. 1 (Bloomberg) -- The Bovespa index surged to a two- week high after Brazil eliminated a tax on foreigners’ stock purchases as part of measures to shore up growth amid the global economic slowdown.

Brazil’s benchmark equity gauge rose 2.2 percent to 58,143.42 at the close of trading in Sao Paulo. Fifty-eight stocks climbed on the index, led by steelmaker Usinas Siderurgicas de Minas Gerais SA, while nine fell. The real gained 0.5 percent to 1.8001 per dollar after the central bank cut its lending rate yesterday.

Brazilian Finance Minister Guido Mantega is scrapping the so-called IOF tax on foreigners’ equity purchases two years after he implemented it to curb investment in the country’s financial markets and stem a currency rally that was crimping exports. Concerns about the real’s strength have eased after it plunged 13 percent in the past four months as Europe’s debt crisis eroded demand for emerging-market assets.

“It simplifies our lives and saves us a bit of money,” said Urban Larson, who helps manage about $2.2 billion in emerging-market assets at F&C Management Ltd. in London. “Does it dramatically change our view of Brazil? No, but it’s definitely positive.”

Brazil is keeping the 6 percent tax on foreigners’ fixed- income investments.

Together with the reduction in the IOF on foreign investment in stocks, Brazil is cutting taxes on home appliances and staple foods to help meet a target of 5 percent growth next year, Mantega told reporters in Brasilia today. The measures will cost 2.8 billion reais ($1.56 billion) in lost revenue next year, the Finance Ministry said in an e-mailed statement.

Consumer Credit

The IOF on consumer credit will fall to 2.5 percent from 3 percent, while another tax on corporate bonds tied to infrastructure projects will be reduced to zero, he said. Brazil is also extending tax cuts on flour, wheat and bread, and reducing a levy on pasta. All of the measures take effect today, Mantega said.

The stimulus measures come a day after the central bank cut the benchmark interest rate for the third time this year to shield Latin America’s largest economy from the deepening European debt crisis.

BM&FBovespa SA, the operator of Latin America’s biggest securities exchange, jumped the most in three months.

Homebuilder MRV Engenharia & Participacoes SA and consumer- goods maker Hypermarcas SA paced advances for companies that depend on domestic demand. Retailers Cia. Brasileira de Distribuicao Grupo Pao de Acucar, Lojas Americanas SA and Magazine Luiza SA rallied on speculation sales will increase after the tax cuts. Shopping mall operators including BR Malls Participacoes SA also gained.

BM&FBovespa advanced 6.7 percent to 10.54 reais, the most since Sept. 1. MRV gained 5.6 percent to 12.30 reais while Pao de Acucar climbed 3.9 percent to 68.75 reais.

‘Short-Term Relief’

“This is always positive and could provide short-term relief,” said Augusto Lange, who helps manage 1.4 billion reais at Neo Gestao de Recursos in Sao Paulo. Still, he said, “a more sustained recovery in the market will only happen if the government’s measures really manage to avoid a stronger slowdown.”

The Bovespa entered a bull market in October after gaining 22 percent from a two-year low on Aug. 8 as Brazil’s interest- rate cuts and speculation Europe was working toward solving its debt crisis buoyed demand for equities. The index is still down 16 percent this year on concern flagging global commodity demand and quickening inflation will hurt corporate earnings growth.

The real’s gain today brought its advance over the past three years to 30 percent. This year’s decline spurred Brazilian policy makers to reverse course after seeking to weaken the currency for more than two years to protect exporters’ profits. Since September, the central bank sold dollars in the futures market at least four times to strengthen the real.

Identical Statement

The Bovespa gained the most in a month yesterday as central banks worldwide moved to shore up liquidity while speculation mounted that Brazil may employ a longer cycle of interest-rate cuts. After the market closed, policy makers lowered the benchmark Selic by half a percentage to 11 percent.

In a statement identical to the one from their previous meeting, the central bank said that “moderate” rate cuts can mitigate the effects of the worsening global economy without putting at risk its 2012 inflation target of 4.5 percent plus or minus two percentage points.

Brazil’s inflation will slow to 5.56 percent next year from 6.97 percent in October, according to the median forecast in the central bank’s weekly survey published Nov. 28. Economists expect economic expansion of 3.46 percent in 2012, up from a projected 3.1 percent this year, the survey showed. Brazil is slowing from last year’s growth of 7.5 percent, the fastest pace in more than two decades.

Index Valuations

The Bovespa trades at 9.9 times analysts’ earnings estimates, in line with the ratio for MSCI Inc.’s measure of 21 developing nations’ equities, weekly data compiled by Bloomberg show.

Traders moved 7.17 billion reais in stocks in Sao Paulo today, data compiled by Bloomberg show. That compares with a daily average this year of 6.52 billion reais through Nov. 24, according to data from the exchange.

--With assistance from Francisco Marcelino and Ney Hayashi in Sao Paulo, Matthew Bristow in Brasilia and Arnaldo Galvao in Brasilia newsroom. Editors: Brendan Walsh, Marie-France Han

To contact the reporter on this story: Alexander Cuadros in Sao Paulo at acuadros@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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