This Week in Emerging Market Volatility – 8/15/2014

The emerging market sector continues to perform well in 2014. This performance comes in spite of the iShares MSCI Emerging Markets ETF (EEM – 44.51) having about 5% of the fund exposed to Russia. EEM rose about 1.8% last week which places the fund up more than 7% for the year. VXEEM dropped over 14% based on the strong week.

VXEEM PA

Brazil is the star of the emerging market sectors this year. The iShares Brazil Capped ETF (EWZ) was up a hair shy of 3% last week and finished the week 12.81% higher for 2014. Despite the strong performance VXEWZ was down less than a point last week. There was a tragedy on Friday where one of the leading candidates for president was killed in a plane crash which rattled VXEWZ a bit.  I posted a blog in this space about the market impact of that plane crash earlier last week –

http://www.cboeoptionshub.com/2014/08/14/volatility-brazilian-markets-yesterday/

I’ll discuss the other reason VXEWZ remains elevated in the discussion of the curves below.

VXEWZ

VXEEM shifted to have more of a contango appearance with the index moving lower. The more interesting curve story comes from VXEWZ. This curve is fairly elevated with September and October futures and then the November price is at a discount to the other two. On October 5th Brazil may elect a new president, unless the old one is re-elected. The markets are showing some real uncertainty regarding the potential outcome and may continue to do so until the results are announced. This is going to be something I’ll keep a close eye on until early October.

VXEEM VXEWZ FUT