Last week we saw a dichotomy between the volatility of emerging markets (VXEEM) and the volatility of the Brazilian equity market (VXEWZ). The VXEEM lost 1.69 points or over 6% to 24.65. On Thursday the VXEEM low was 23.20 which was the lowest level for this index since late April of this year. Along the curve, the VXEEM prices moved in sync with the index indicating no real change in the risk premium accorded the futures.
Implied volatility of the Brazilian stock market was basically unchanged on the week after hitting a low of 25.90 on Thursday. This was the first time the VXEWZ traded below 26 since May 1st which came before the EWZ dropped almost 20% over the course of a few weeks. This EWZ drop was country specific, but did put some pressure on EEM returns as well. VXEWZ curve behavior was interesting. Although the index was basically unchanged on the week the shape of the curve (see right chart below) shifted a bit based on an increase in the August and September futures prices. This increase in futures indicates increased risk perception for the Brazilian market over the next few months.