Emerging markets were strong along with other global equity markets this week. The iShares MSCO Emerging Markets Index ETF (EEM – 40.64) moved up by about 3.5% and volatility dropped with VXEEM losing 12%. This is basically a round trip over the past two weeks for VXEEM having gained 12% the week before. The September VXEEM future dropped 17% which resulted in the future moving to a discount relative to the index. This is an indication that the futures which expire on the 19th are pricing in lower volatility over the next week and a half. This also may be interpreted as a bullish outlook for emerging market stocks over the same period.
The iShares MSCI Brazil Index (EWZ – 52.72) was up 5% last week. Interesting EWZ had such a strong week shortly after a Forbes headline declared the Brazilian market boring. There may actually be something to the theory of taking the other side of headlines. VXEWZ lost 6% and the September future was down almost twice that much. The Brazilian stock market has been a rollercoaster ride this year due to country specific economic issues. The result has been high option volatility and steep futures premiums. With the EWZ rally last week that gap narrowed quickly, at least for the September VXEWZ futures.