Emerging markets were just not the place to be in 2013. The iShares MSCI Emerging Markets ETF (EEM – 40.12) was down 3.6% in 2013. That does not sound like a terrible year until you consider the context the stellar performance of developed markets in 2013.
Despite EEM having a mostly bearish year, the CBOE Emerging Markets ETF Volatility Index (VXEEM – 24.21) actually made an all-time low hitting 15.00. I attributed this to such a low volatility environment in the US markets carrying over to option pricing on EEM.
One of the worst performances in the emerging market space was from the Brazilian stock market. The iShares MSCI Brazil Capped ETF (EWZ – 43.43) lost about 17.5% in 2013. The Brazilian economy was so bad last year it led to social unrest and protests. Those sorts of events do not instill confidence with investors.
Of the five equity market related volatility indexes that have listed derivatives, CBOE Brazil ETF Volatility Index (VXEWZ – 25.20) was the most elevated throughout 2013. A sustained bear market like what Brazil went through in 2013 will do that to implied volatility.