The CBOE Brazil ETF Volatility Index (VXEWZ – 30.04) moved over 30.00 on Friday based on Brazilian stocks coming under pressure in line with US equities. Also, the iShares MSCI Brazil Capped ETF (EWZ – 43.14) was down over 3% for numerous reasons. There are continued concerns specific to the Brazilian market as well. Inflation is not fully under control and the Real is under pressure. The central bank may end up having to raise rates in a sluggish economic environment. Doing so will result in a new headwind for Brazilian businesses. This is the sort of uncertainty in a market that justifies implied volatility in the 30’s.
The iShares MSCI Emerging Markets Index ETF (EEM – 39.30) dropped slightly on the week outperforming US stocks. Implied volatility inched up by about 3.5% which is much less than the other tradable volatility index. Anecdotally I was surprise to see the performance in EEM relative to other markets based on the grumblings I heard regarding the authenticity of data coming out of China. Emerging markets have been under pressure relative to domestic stocks this year. Valuations may be providing a floor that held the ETF this past week.