Brazil has been in the headlines as of late with the countdown to the 2014 World Cup can be measured in weeks. Specifically Brazil will take on Croatia in the opening match on June 12th which is probably an easy win for Brazil. Another positive for Brazil has been the performance of the equity market. The iShares MSCI Brazil Capped ETF (EWZ – 48.48) rose 3.68% last week alone and is now up 8.5% for 2014. The rally in EWZ resulted in lower implied volatility as indicated by the lowest reading for the CBOE Brazil ETF Volatility Index (VXEWZ – 25.51) since the beginning of 2014.
Not to be outdone, the CBOE Emerging Markets ETF Volatility Index (VXEEM – 18.51) dropped over 14% as that underlying market gained about 2% last week.
As far as the volatility curves go they had what can be described as a textbook shift based on a drop in the underlying index. Also the shape of both curves is a very typical looking contango which may indicate further upside for emerging markets from here.
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