Emerging markets followed the S&P 500 higher (or led since we had an abbreviated week) with EEM up a little over 3% and the Brazilian market as represented by EWZ up a little over 2%. There is some overlap between these two as the Brazilian weighting makes up about 10% of the iShares MSCI Emerging Markets Index (EEM). As of Friday EEM is up 9% on the year and EWZ is down 5% for 2012. The respective volatility indexes have reflected this disparity in performance throughout the year. However as of late the premium of VXEWZ relative to VXEEM has been narrowing and is down to 1.26. To highlight this I added an extra chart this week to the graphics below. The top chart shows the spread between VXEWZ and VXEEW as determined by subtracting VXEEM from VXEWZ. The range this year has been between -0.06 and 8.36. With the spread down to 1.26 and the spread between the respective futures contracts at similar levels I read this as the markets not pricing in more risk for EWZ versus EEM in early 2013 which may be taken as the market pricing in the 2012 troubles for the Brazilian stock market not continuing into 2013.