The emerging market bulls continue to scratch their heads as EEM and EWZ have consistently underperformed the US markets in 2013. This week was particularly interesting as EEM and EWZ both lost 3% while the S&P 500 moved higher. Admittedly the NASDAQ-100 lost a little value, but nothing like 3%. On Friday I came across a Barron’s Online story that discussed a recent Barclays Report that was encouraging clients to hedge against a drop in the EEM through purchasing puts. The story says Barclays is calling emerging markets a tired growth story. Whatever the reason emerging markets are acting tired and the volatility indexes are showing concern in the options markets as well.
VXEEM rose almost 5% last week to 15.97. Still a historically low level, but directionally not what an EEM bull would want to see. There was a bit of divergence in VXEEM futures as the March contract lost value. Of course it only has two trading days remaining until expiration and is still at over a 1.00 point premium to the index. The rest of the curve moved a little higher as would be expected. VXEWZ rose only 1.6% last week, but is already at a higher level than VXEEM. The curve continues to move higher and maintain a pretty steep shape. All in all, emerging market volatility markets are indicating caution is abounding for the underlying indexes.