This Week in Emerging Market Volatility

According to many market forecasters the big thing in 2013 could be emerging markets. Right now the volatility markets agree with VXEEM and VXEWZ hovering all-time lows. The history on VXEEM is limits us to looking back only to March 2011, but until the first day of 2013 we had never seen VXEEM below 20. Since January 2nd VXEEM has traded down to the 17’s and come darn close to a 16 handle. This is the sort of forward looking volatility usually reserved for developed markets.

After a rocky first half of 2012 EWZ recovered nicely and VXEWZ seems to have put the memory of a 20% EWZ drop in a few weeks in the rear view mirror as well. VXEWZ is usually at higher levels and usually at more of a premium than just 1.20 to VXEEM. Confidence that exists in VXEEM is also present in VXEWZ. The Brazilian market makes up about 12% of EEM. Asia in the form of South Korea, Taiwan and China make up 50%. We do not trade volatility on China yet, but we do have a volatility index. The VXFXI which represents volatility on the Chinese markets is still in the 20’s as of the end of the week. Could be emerging market players see a little more risk in China than other emerging markets.

Details are not final yet, but keep an eye out on Twitter as Jill Malandrino of OptionsProfits and myself will discuss the emerging markets in a webcast after the market close this coming Thursday January 17th.