Emerging Markets continue to trade very calm, both absolutely and relatively speaking. The MXEF index (Emerging markets) versus MXWO (Developed markets) 60 day realized volatility has imploded lately and trades at levels last seen in 2013.

FX volatility shows a similar picture. Since the huge spike in EM FX vol last summer, EM FX vol has been “outperforming” the DM FX vol space.

Sure, back then we had the extraordinary events such as the Turkish Lira moving massively, but the question is if the current low EM versus DM volatility risk is priced accordingly?

More investors probably look at the spread of VIX versus the VXEEM (emerging market volatility) index. Note that the spread has imploded recently (the spread got a bit “extra whacked” around the Christmas turmoil). We are seeing the spread far out on the normal distribution curve.

The most widely used equity ETF proxy for EM exposure, the EEM US, has enjoyed a rally as global equities have bounced higher, but note the big 42 level as big resistance area as well as the channel that has been in place since last summer.

The EEM US realized volatility (orange 60, green 90 days) versus implied volatility (blue). Implied vol is not cheap as such, but note the gap versus realized volatilities.

During the entire 2018, people hated the Emerging Market bond ETF, EMB US. Since the Christmas turbulence, this ETF has put in a massive move higher and managed closing above the 200-day average. Long term, the EM space might be great, but chasing some of the assets like the EMB US here, seems a bit too late trade.

Source: charts by Bloomberg