Tax dispute keeps Vale and all of Brazil too hot to handle

Despite being one of the biggest miners on the planet, Brazilian iron ore giant Vale (VALE, quote) has been dead money for well over a month now, and its lack of upside has kept the broad Brazilian market on the defensive.

The problem has been Vale’s ongoing dispute with Brazilian tax authorities.

The company has already agreed to pay $5.6 billion but now has to set aside close to another $1 billion or so as collateral while it challenges additional charges.

Since Vale shares peaked at $25.04 right before this story broke, the stock is down 7%.

And since this is the second-biggest stock in Brazil, weighted Brazil portfolios like EWZ (quote) have found it impossible to get much traction. 

Vale thinks it can win here, but if it loses, $17.6 billion is at stake — enough to wipe out a hefty portion of its $118 billion market cap, much less a year of earnings.

This is still a great company but between the new sense of slowing demand from China and the state leeches hanging from its torso, investors’ appetites for this stock are going to be limited.

In other words, Vale is dead money for now.

Unfortunately, with Petrobras (PBR, quote) suffering from its own profit-related woes, you have close to 30% of the EWZ dragging the banks and other Brazilian names. As VALE and PBR go, so — inevitably — goes the Bovespa.

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