Emerging markets continued to feel some pressure last week with EEM losing 0.75% and EWZ down just a tad. The volatility markets for EEM and EWZ had completely different stories. First VXEEM dropped 13% last week even though the underlying market was down 0.75%. We often see VIX influence VXEEM and I’m going with that one for last week.
VXEWZ continued to move higher as national elections approach in early October. I witnessed similar behavior back in the spring in the India market. Leading up to the election in India the volatility index based on Nifty 50 option trading climbed higher regardless of what the underlying market was doing. It is interesting to watch the same sort of behavior play out in a completely different part of the world.
The VXEEM curve went from flat to contango with the drop in the index last week. On the right side below, VXEWZ is displaying what I am going to call event induced backwardation which will probably hold up for the next couple of weeks.