A better title for this blog may be “This Year in Emerging Market Volatility”. As of Friday both EEM and EWZ have been disappointments to emerging market bulls. Despite the S&P 500 rising almost 11% this year, EEM is down 4.75% and EWZ has lost 3.97% on the year. The chart below indexes all three to 100 as of 12/31/2012 and is a good comparison of how the year has gone for each.
The interesting thing is what VXEEM and VXEWZ have done this year despite their underlying markets not performing particularly well. Note the second chart that appears after this paragraph. This is a daily chart of the absolute levels for VIX, VXEEM, and VXEWZ for 2013. Note they basically are moving in line with each other. It appears, at least so far this year that the implied volatility for EEM and EWZ options is reflecting what is going on in the S&P 500 more than the action in the underlying markets. This market activity related to history is definitely going to involve more digging on my part.
This past week EEM and EWZ were up on the week and their respective volatility indexes dropped accordingly. Also, after a bit of a market scare that pushed the indexes higher and flattened the curve, the shape of the two curves seems to be returning to normal.