This Week in Emerging Market Volatility – 5/30/2014

Since the majority of volatility index related news consists of discussions about how VIX is testing post-2008 lows I have been getting questions about where to find more volatile markets.  The emerging markets seem to be that place.  Last week the CBOE Emerging market ETF Volatility Index (VXEEM – 17.60) rose over 12%.  This move higher was admittedly off a low base, but VXEEM has on average been higher in 2014 than in 2013 and 2013 was not exactly the best year for the emerging market sector.

VXEEM PA

Brazilian market volatility rose as well gaining right at 6.00% for the week with VXEWZ finishing at 24.75.  Brazilian stocks, until late, have been one of the best performing sectors.  However, last week iShares MSCI Brazil Capped ETF (EWZ – 46.49) lost close to 3% and is not just over 4% higher for 2014.  That’s ok performance, but consider a couple of weeks ago EWZ was up 10% on the year.

VXEWZ PA

The curves both shifted a bit higher, but there was some flattening as well.  Contango is still the best description for both the VXEEM and VXEWZ term structures, but one more week of sub-par performance and the picture could change to backwardation.  Finally, I’m trying my best to not sound like I’m over promoting trading volatility, but VXEEM futures trading has been catching on and the open interest is hovering around 1,000 contracts.  I don’t know if traders are getting long or short emerging market volatility, but it appears there is an outlook that is resulting in positions in emerging market volatility futures.

VXEEM VXEWZ