The Brazilian market was down almost 4% last week as a combination of slow growth and higher interest rates put pressure on equity prices. However, on the bright side it appears most of the stadiums for next year’s World Cup are on track to be ready. Despite a big drop in the iShares MSCI Brazil Capped ETF (EWZ – 45.22) the CBOE Brazil ETF Volatility Index (VXEWZ – 27.55) was actually lower last week. The VXEWZ futures curve actually shifted slightly to a more contango like shape. I could just be that despite negative news, the volatility markets had already discounted slow growth and higher rates.
The picture for the emerging market space is a little brighter beyond Brazil. The iShares MSCI Emerging Markets ETF (EEM – 41.94) was lower by about 1% last week as the other major emerging markets were not under as much pressure as Brazil. However, the CBOE Emerging Market ETF Volatility Index (VXEEM – 25.02) rose almost 10%. VXEEM is still at a discount to VXEWZ which has been the norm for 2013, but the discount narrowed greatly. My initial thought is as tapering looms over the US markets, it does as well over the emerging markets and the impact on those markets could be much more detrimental than the impact on the US.