The reduction of Brazil’s six per cent IOF tax charged on foreign exchange inflows investing in fixed-income instruments to zero should provide a boost to the flows and liquidity of exchange-traded funds with Brazilian government exposure.
That is the view of Eleanor Hope-Bell, head of SPDR ETFs in the UK, who notes that the tax was originally introduced in October 2010 to decrease portfolio capital inflows that were causing appreciation pressures on the Brazilian Real.
“We welcome this recent announcement from Brazilian Finance Minister Guido Mantega to remove the financial transaction tax (IOF) on its government issued bonds,” she says. “Going forward, any new investors to this asset class should experience improved cost of ownership; and as a result, we expect to see improved flows and liquidity into ETFs that have Brazilian government exposure.
“For us, this tax had been a material component of the entry cost in the primary market to access ETFS such as our SPDR Emerging Market Local Debt UCITS ETF and the newly launched SPDR Emerging market Inflation Linked Bond UCITS ETF, the world’s first ETF giving pure exposure to EM inflation-linked debt.”
