This Week in Emerging Market Volatility

Both the Emerging Markets and Brazilian indexes lost value last week. However, the Emerging Markets Volatility Index – VXEEM – finished the week down despite the index losing almost 1 ½%. My theory on this has to do with where investors are putting their money. Apparently $3 billion flowed into the EEM exchange traded fund over the last two months. This fund has just over $52 billion under management so this is a pretty dramatic addition to the portfolio. As this money continues to flow in and get put to work, the result can be a short term boost to the EEM and lower volatility. Also, if you are a new purchaser of the EEM you probably aren’t concerned with near term prospects and are not buying put options to protect your new investment. 

VXEWZ was actually higher on the week, not seeing the same sort of inflow as EEM. However, and this goes for both the VXEEM and VXEWZ futures arenas – all futures were lower on the week. The US markets are starting to see lower longer date volatility and the emerging markets are following suit.