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UPDATE 1-Templeton sees Brazil reversing capital inflows tax

Published 10/27/2009, 01:12 AM
Updated 10/27/2009, 01:18 AM

* Templeton looking at Brazil ADRs to avoid new inflows tax

* Mobius thinks Brazil will reverse capital inflows tax

* Says capital controls in other emerging mkts possible (Updates with details, quotes)

By Dayan Candappa

SINGAPORE, Oct 27 (Reuters) - Templeton Asset Management is looking at ways to get exposure to Brazil without being hit by a new capital inflows tax, though expects the government to reverse the move, veteran investor Mark Mobius said on Tuesday.

"We are certainly looking at it very carefully. We don't want to bring money that will be taxed immediately," said Mobius, who heads Templeton's Emerging Markets Group, in a Reuters Television interview.

Brazil's Finance Minister Guido Mantega said last week the government is considering additional steps to complement a new tax on capital inflows that took effect a week ago..

Brazil said it would charge a 2 percent tax on foreign investment in stocks and fixed-income securities in order to contain the rapid strengthening of the real.

"So we are looking at ADRs, GDRs, any opportunities where we would have to bring dollars into the country," said Mobius, who managed about $20 billion in emerging market assets as of March.

Investors may shun trading of Brazilian stocks and switch to American Depositary Receipts, or ADRs, of companies traded in New York because of higher costs, traders have said.

Mobius said he expected the government to reverse a move that hit the real currency and drove Brazil's stock market to its worst one-day plunge in three months last week.

"I think they eventually will. We've seen this before, they've done those kind of restrictions before, and they realised that it's not very healthy for the economy.

He said capital controls in other emerging markets were possible, though could not predict which countries.

"Hopefully most countries will understand that capital controls are a dangerous step to take," he said in the Reuters Messaging chatroom Markets Buzz.

Mobius told Reuters in March that Brazil, together with China, was among his top country picks. He said on Tuesday that he was looking at Africa, the Middle East and Asian countries such as Vietnam, while Russia would benefit from higher oil prices. (Additional reporting by Vidya Ranganathan and Harry Suhartono; Writing by Neil Chatterjee; Editing by Jan Dahinten)

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