The Journal notes that the last time such a scenario was in place, EEM surged 14% in less than two months. Interestingly, China’s currency devaluation has made it expensive to bet against EEM and the MSCI Emerging Markets Index.
The subsequent spike in volatility caused by China’s newly loose monetary policy is elevating the cost of protective bearish hedges on marquee emerging markets indexes.
“The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, which tracks hedging costs on the iShares MSCI Emerging Markets fund, jumped to the highest level in 18 months versus a similar gauge for the Standard & Poor’s 500 Index,” report Callie Bost and Aleksandra Gjorgievska for Bloomberg.
iShares MSCI Emerging Markets ETF
Tom Lydon’s clients own shares of EEM.