This past week I was lucky enough to get to participate in CBOE’s Risk Management Conference just outside of Dublin, Ireland. There was one session where the presenter asked for members of the audience to raise their hands if they feel the emerging market sector is a safe place to get equity exposure these days. A good number of attendees raised their hands and he noted how interesting it is, with EEM up 10% this year, that people feel safe about the emerging market sector when no one was recommending putting money into emerging market stocks at the beginning of 2014. VXEEM, at pretty low levels, reflects this same positive outlook for EEM.
If people like EEM which is up 10% they must love EWZ (Brazil) which is up over 21% in 2014. However, Brazil is in its own little world, at least for the next few weeks, while we wait for national elections in early October. Hence the relative high level of VXEWZ which should come back down once the election result seems certain.
The most interesting thing showing up on the charts below should stand out to even the most casual volatility market. To use one of my mother’s favorite phrases (imagine the southern Alabama twang), “That VXEWZ curve just ain’t right”. No, it is not, however, it does tell a little story, and not the kind that contain a few white lies for illustration purposes. The drop from October (the first future to expire after the elections) to November can be taken as the market expecting quick resolution once the Brazilian election is over. Now whether the results will be positive of negative for Brazilian stock is another story.