The Brazilian equity market continued on the prevailing trend lower this week after getting a temporary reprieve two weeks ago. The equity market had a small bounce based on the announcement that the Brazilian Central Bank was going to step in and prop up the currency. This was a short lived recovery for the real and the equity market. The iShares MSCI Brazil Capped ETF (EWZ – 42.39) dropped just under 2% last week and remains down over 20% on the year. The CBOE Brazil ETF Volatility Index (VXEWZ – 32.18) has often shrugged off negative performance out of EWZ, but did take notice last week rallying back into the 30’s. Along with the rally came a little inversion to the curve which went out a week ago basically flat.
The (VXEEM – 28.14) played some big time catch up to VXEWZ rising over 20% this past week. Along with the 2% drop in the Brazilian market, Russian stocks were of over 3% and the Indian market dropped 4.5%on the week. That sort of action led to concern about the near term prospects for emerging markets and the spike in volatility last week. Odds are the US market being under pressure contributed to this move as well.