The iShares MSCI Brazil Capped ETF (EWZ – 40.76) gained 1.3% on Friday which moved the weekly performance from down 1% to up 0.3%. The Brazilian equity market has been under pressure due to some concerns that are specific to Brazil and some concerns that could be referred to as guilt by association (think Argentina – even though the two countries are in two very different situations). Whatever the reason, despite an up week for EWZ implied volatility climbed as well and the VXEWZ curve is showing signs of backwardation.
The more developed of the emerging markets were under pressure relative to EWZ and the iShares MSCI Emerging Markets ETF (EEM – 39.43) posted a loss for the week, but go figure, VXEEM was actually lower and that curve is in contango. Despite the underlying performance being of a contrary opinion this past week the volatility players see more risk in Brazil than the overall emerging market sector. I’ll be interested to see the relative EEM / EWZ performance for the next few weeks to see who is right.