This past week the emerging markets took it on the chin in sympathy with the drop in US stocks. The Emerging Markets ETF (EEM – 43.28) lost 1.61% and the Brazilian ETF (EWZ – 54.82) was down 2.4%. US markets were under pressure, but not quite to this magnitude. Of course the bulls have been out in force pointing to the opportunities in emerging markets for 2013 so they may have had a little more performance to give up.
Both VXEEM and VXEWZ were up close to 15% on the week and both were coming off historically low bases. What really catches my eye here is the behavior of both curves. VXEEM was up 15.26%, the March contract gained 2.47%, April was flat on the week and May lost value. The VXEWZ curve exhibited the same behavior with the spot index up 14.19%, the March future up 5.53%, April up 2.73% and May actually losing a tick on the week. This dramatic flattening means the markets are pricing in this recent volatility spike to be short lived and for the emerging markets to continue their march higher for 2013.