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Tobin Tax

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     Brazil has imposed what may be the first Tobin Tax on foreign portfolio investment inflows. When you buy on the local bolsa, your costs now include a 2% disuasive tax intended to nip foreign currency inflows into Brazil.

     The reason is that Brazil's Real currency has risen 23% against the dollar this year. And the impact could be harmful to the export-oriented economy because it will make Brazilian products more expensive to buy. Moreover, Brazilian local products have to compete with imports made cheaper by a rising Real, which hurts the fledgling economy.

     But there is a winner and it is us. American Depositary Receipts traded in the US are not subject to the capital inflow tax. So if third country investors or funds want to own a Brazilian share, they can buy ADRs right here on Wall St.

     Brazil is not the only country which is suffering because its currency is so strong. The same paradox applies to others. For example, the Hong Kong dollar is at the top of its band against the greenback. The HK$ has a fixed exchange rate. But now the impact of $200 bn in inflows into the city state has resulted in the HK$ hitting high valuation (HK$7.75) per US dollar.

     James Tobin, who died 7 years ago, proposed that capital flows be moderated by imposing a tax on them. His idea periodically resurfaces when exchange rates produce paradoxical results, as in Brazil today. But these counter-currents mean that any attempt to reverse quantitative easing in the developed world will cause serious issues in the emerging market countries.

     More news for paid subscribers follows from me and Frida Ghitis.




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About the Author

Vivian Lewis is editor and founder of Global-Investing.com, the daily blog newsletter for Americans and others seeking to internationalize their portfolios. She brings unique experience and competences to the business of picking foreign stocks. After graduating from Harvard magna cum laude (and being elected to Phi Beta Kappa), Vivian lived 18 years in Europe where she worked as a financial journalist.

Back in the U.S. in 1989, she decided that retail investors managing their own portfolios deserved the kind of information she had been digging up for mutual fund and pension fund managers. So she started Global Investing, now 19 years old. It began with the rise of the American Depositary Receipt market, where now some 2,500 shares can be bought. We also cover Canadian stocks (which are not ADRs).

Nine years ago, she started GlobalInvestingPro, which has now been incorporated into the main global investing newsletter, mainly because the number of unsponsored ADRs has grown rapidly since late 2008.

Apart from ADRs, Global Investing also covers yield instruments like yankee bonds and foreign preferred stocks. And for start-up global investors, we recommend closed-end and exchange-traded funds which invest outside the U.S. Fund offer instant diversification at lower cost than individual stocks. But with discount brokerages on the Internet, you can built an global portfolio with as little as $25,000 to start with.

Vivian brings to her readers her familiarity with foreign markets, a full rolodex of contacts garnered during 18 years of living abroad, and the ability to speak a half-dozen languages.

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