Emerging markets had a tough week last week. The iShares MSCI Emerging Markets ETF (EEM – 41.20) dropped about 2.5% and is down a tad over 3.5% on the year. The amount of underperformance for emerging markets is startling considering the high hopes many investors had going into 2013. That enthusiasm combined with the S&P 500 up 14% on the year makes even the most bullish outlook for emerging markets take a second look. For volatility players, VXEEM moved closed to the mid-20’s which is where you would expect a volatility index to be on a market that has had so much trouble getting out of the gate this year. Last week the weakness in EEM was blamed on China, this week the credit goes to Brazil.
The other tradable volatility market in the emerging market space is VXEWZ which is based on implied volatility of options on the iShares MSCI Brazil Capped Index ETF (EWZ – 50.89) that bases performance on the Brazilian equity market. To say Brazilian stocks had a terrible week last is putting in kindly. EWZ dropped almost 7% and VXEWZ rose almost 30% on a week over week basis to 26.78.