Replies to post #7730 on The Rising Influence of Rising Affluence

[DewDiligence]

VALE settles federal tax dispute for $9.6B, ¾ deferred:

http://finance.yahoo.com/news/vale-pay-9-6-billion-013915919.html

Brazilian miner Vale SA said on Wednesday that it agreed to pay 22.325 billion reais ($9.61 billion) in taxes on profit from overseas operations, accepting an offer from Brazil's government that cuts a disputed back-tax bill in half.

The world's largest producer of iron ore will spread payments over 15 years with 5.965 billion reais [$2.6B], or 27 percent of the total, due this month. The agreement came as Vale neared a deadline of Friday to either accept the government's discount offer or see it vanish.

The remaining 16.36 billion reais [$7.0B] will be made in 179 monthly payments [i.e. about $40M per month]... Without the discount, Vale estimated its disputed tax bill at 45 billion reais ($19.4 billion).

While Vale agreed to end lawsuits contesting the payments for the 2003-2012 period in exchange for the discount, Chief Executive Officer Murilo Ferreira said the company still considers the Brazilian assessment unfair "double taxation".

… the cash impact on Vale's 2013 profit will be 20.7 billion reais, the company said. Future payments will be adjusted for inflation using Brazil's benchmark Selic rate…

The tax payments will be made out of the company's cash flow and will not affect the payment of dividends under the company's current dividend program, Ferreira said.

The monthly payments will be adjusted for inflation according to the Selic rate (#msg-94513417).

[wow_happens28]

Brazil ETFs in Focus on GDP Contraction: Any Hope for 2014? - ETF News And Commentary

http://ih.advfn.com/p.php?pid=nmona&article=60288229&symbol=EWZ

A year to forget for Brazil isn’t over quite yet, as more bad news has hit the huge South American nation. This time, the weakness comes from the latest GDP report from the country, which was quite poor.

In the report, Brazil revealed that its GDP actually contracted for the most recent quarter (compared to Q2), posting a decline of -0.5%. This was lower than the -0.3% slump predicted by a Bloomberg survey of 38 economists, according to the Financial Times.

The key areas of weakness in the country came from a big slump in agricultural output, which tumbled by 3.5% (q/q), while industry and services were a bit better, showing tiny gains for the time period. Troublingly for the nation though, investment also fell, by 2.2%, suggesting that some are abandoning the country as a destination for capital (also see Brazil ETFs Crushed by Downgrade, Currency Woes).

Given this struggling growth, many might think that a rate cut is in order for the nation. However, with a recent hike to 10% and inflation at nearly 6%, this isn’t really an option, suggesting that the central bank and government officials are kind of stuck for the time being, and that more trouble might be ahead for Brazil.

ETF Impact

As you can imagine, this news has led to some poor trading for the many ETFs tracking Brazil. The gold standard in this corner of the ETF world continues to be the iShares MSCI Brazil Index Fund (EWZ) and this product tumbled after the report on GDP was issued.

This also continues the terrible trend for EWZ for pretty much all of 2013, as the product has lost more than 20% in the time frame. Much of these losses came when the taper discussion first came to the forefront in the U.S., but the recent rate hike and growth concerns are threatening to send the fund into another run lower.

However, it is also worth noting that the slide in shares has hit other aspects of the Brazilian ETF market as of late too, suggesting that other types of securities are by no means immune to what has been happening in the country (see all the Latin America Equity ETFs here).

The Market Vectors Brazil Small Cap ETF (BRF), for example, which targets pint-sized firms in the nation, has lost over 31% on the year, while EWZS has also tumbled by more than 30% in the YTD time frame. Sectors have also been big losers in the time period, with the Global X Brazil Financials ETF (BRAF) and the Global X Brazil Consumer ETF (BRAQ) losing more than 20% each as well year-to-date.

Clearly, no segment has been spared and losses have been pretty widespread across the country. And given the slump in GDP and the lack of foreign investment—a situation which could continue if there is a taper in the U.S. QE program—it is hard to get too excited about Brazil in the short term.

For this reason, our view on Brazil ETFs is still pretty negative for the most part. EWZ currently has a Zacks ETF Rank #5 (Strong Sell), while BRF has a Zacks ETF Rank #4 (Sell), suggesting that these are likely to underperform their emerging market counterparts in the near term (see all the top ranked ETFs here).

Bottom Line

The situation in Brazil has been pretty terrible and there is little hope for gains in the months ahead. However, given the increases in government spending and the huge need for infrastructure for the coming World Cup and Olympics, a look to a Brazil infrastructure ETF might be an interesting idea.

There is one such ETF that has this focus, the EGShares Brazil Infrastructure ETF (BRXX). This overlooked ETF, which is in my personal portfolio, is certainly not the most popular fund out there—nor is it the cheapest at 85 bps a year—but it could be an interesting and concentrated play on one of the few segments of Brazil that could have some promise in 2014 (see the 4 Best New ETFs of 2013).

The fund has fallen like the rest of the Brazil group lately, but with all the spending still coming, and if the Brazilian government needs to do more in order to pick up the slack in the economy, this could be a top sector to focus on.

So if you still want some exposure to Brazil, BRXX might be a slightly better play at this point— it also has a Zacks ETF Rank #3 (Hold)—though it is clearly a tumultuous and risky environment across the board for the nation in the short term.

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Author is long BRXX.