Emerging equity markets as measured by EEM – 41.00 were lower this week, but not under as much pressure as the US markets. Despite this, VXEEM rose over 8% for the week. However, note the shape of the curve for VXEEM below. November futures are at a discount to the index and December futures are barely at a premium. This puts the curve in slight backwardation. This may be an indication that there is lower risk into the end of the year priced into EEM options than options on US stocks. Stated another way the volatility behavior of EEM options is more bullish than the volatility behavior of options on the S&P 500.
Brazilian stocks were another story last week as the EWZ dropped in line with US stocks and VXEWZ rose in line with VIX. There have been a few bullish Brazil scenarios out there for 2013. Looking at VXEWZ and the VXEWZ curve – volatility guys think there’s still time to buy if you think Brazil is the place to be in 2013.