Add the possibility that Brazil may end tax breaks for stocks to the growing list of reasons to avoid the Ibovespa, which dropped to its lowest level in a month.
Traders pushed down the value of Brazilian shares after newspaper O Estado de S. Paulo reported that the government may look at the incentive, which cost the Treasury 14 billion reais ($4.6 billion) last year, as part of a broad plan to cut spending. After entering a bull market last month, the nation’s equities have fallen 3 percent amid concern Brazil won’t be able to avoid a credit downgrade to junk as Latin America’s largest economy heads toward the worst contraction since 1990.
“This is more bad news to a market that has been struggling,” Paulo Henrique Amantea, an analyst at brokerage H.H. Picchioni, said by telephone from Belo Horizonte, Brazil. “It’s a big uncertainty.”
The tax break for equities, known as interest on capital, was created in 1995 and is related to the distribution of profits. Estado didn’t say where it got the information that the incentive may end. Brazil’s planned budget freeze this week of as much as 80 billion reais and spending cuts in Congress are insufficient to meet this year’s fiscal target, said a government official with direct knowledge of the discussions.
The Ibovespa retreated 1.1 percent to 54,901.02 at the close of trading in Sao Paulo. A measure of financial companies in the MSCI Brazil Index slid to a one-month low as Itau Unibanco Holding SA and Banco Bradesco SA slumped.
President Dilma Rousseff will have to increase more taxes and seek extraordinary revenues in order to meet a 2015 primary budget surplus target, which excludes interest payments, of 1.2 percent of gross domestic product, said an official who requested not to be named because the talks are not public.
Investors also watched Federal Reserve minutes for clues on when the U.S. borrowing costs will rise after a period of monetary stimulus that’s helped pace a rally in emerging-market assets. Fed officials last month didn’t expect to raise rates at their next meeting in June even as they concluded that a first-quarter economic slowdown was unlikely to persist, the minutes showed.
Thirteen out of the 14 stocks in the MSCI Brazil/Financials Index retreated. Itau dropped 1.8 percent to 36.50 reais. Bradesco lost 2.5 percent to 30.25 reais.
Kroton Educacional SA rose after reporting earnings that beat analysts’ estimates. The shares also gained after Agencia Brasil reported the government is considering providing more student loan contracts. On Dec. 29, Brazil announced new rules that made it more difficult for students to get a loan.
Kroton advanced 0.2 percent to 11.84 reais, while Estacio Participacoes SA added 1.8 percent to 18 reais.
Trading volume of equities in Sao Paulo was 8.67 billion reais, according to data compiled by Bloomberg. That compares with a daily average of 7 billion reais, according to the exchange.