This Week in Emerging Market Volatility – 6/7/2013

This past week I made a couple of presentations on behalf of the Australian Securities Exchange (ASX) in Melbourne and Sydney.  The ASX is in the process of developing and offering futures contracts based on the S&P / ASX 200 VIX Index.  I was able to use some examples of volatility behaving differently for different markets and one of my examples was the VXEWZ closing curve on 5/31/2013 (the red line on the bottom right chart).  The Brazilian market was under pressure the week of the 31st and the result was a 30% move in the index along with 15% move higher in the June contract.   I commented that it appeared this move in the futures had the appearance that traders expected more upside in VXEWZ over the near term.  The June contract was at a discount, but the flat shape of the curve on the 31st had the appearance of a volatility market that was expected to go higher.  Well, it did last week.  There was a rating downgrade for the Brazilian markets and the result was another drop of over 2% in the EEM, a 6% rally in VXEWZ and the June future up another 7%.  The curve shape didn’t change too much.  Could be more volatility is expected over the near term.  EEM was lower as well, dropping just over 1% with VXEEM up 2.7% and the front month future rising over 3%.

VXEEM VXEWZ