This Week in Emerging Market Volatility

Coming into 2013 there were lots of bulls recommending getting exposure to the Brazilian stock market. They were rewarded this past week as EWZ rose over 4% which came on the heels of strong economic data. This time last week EWZ was actually down on the year and despite a strong week EWZ continues to lag other market indexes. VXEWZ dropped over 8% on the week, but remains at a premium to the other three tradable equity index volatility markets (VXEEM, VIX, and VXN). This premium could be a result of the market lagging, concerns about inflation in Brazil which often accompanies a pickup in economic activity, or the continued outflows that the EWZ exchange traded fund is experiencing.

EEM has a solid week as well moving up by about 2%, but remains in the red for 2013. VXEEM dropped by over 18% and the futures curve moved down across the board. The EEM exchange traded fund has experienced net withdrawals in 2013 despite being basically flat on the year. VXEEM is at a historically low level which indicates volatility traders believe the lower volatility (and possibly higher EEM) is on the horizon.