The emerging market space did not react in quite the same manner as the S&P 500 as rumors took stocks lower in a couple of legs down Thursday. We saw a gain in the implied volatility of EEM options, but not nearly to the extent as with the developed markets.
Brazil continues to be a fun space to watch in 2014. Apparently there is unhappiness with the leadership and a change may be on the horizon. This was given as the reason Brazilian stocks moved up last week with the iShares MSCI Brazil Capped (EWZ – 50.30) putting up a 3% week and now 2014 performance for EWZ is just shy of up 15%. I always had a little sympathy for CEOs that would resign and the result would be a rally in the stock price – I sort of have the same sympathy for Dilma down in Brazil as the stock market rallies because she may be on the way out.
The VXEEM curve twisted while VXEWZ prices moved uniformly higher last week. VXEEM was up over 9%, but the front month contract actually dropped on the week. This may be attributed to August already at more than a 3 point premium to the spot index on last Friday. VXEWZ rose about 5% and all the futures moved higher as well – this can be taken as an indication that the situation is expected to be tumultuous for the Brazilian economy and stock market over the next few months.