Emerging-Market Stock Volatility Falling to Record Low

  • Implied volatility for sector’s biggest ETF is at all-time low
  • Investors see smooth sailing ahead after 26% gain this year

Three Charts You Don't Want to Miss on the Fed

Emerging-market stock investors are as tranquil as they’ve ever been, pushing volatility to a record low ahead of the Federal Reserve meeting this week at which policy makers will detail plans to unwind a $4.5 trillion balance sheet.

Expected price swings in the Vanguard FTSE Emerging Markets exchange-traded fund, the biggest of its kind with about $62 billion in assets, have fallen to an unprecedented 10.1 percent compared with a five-year average of 18.6 percent. That follows a 26 percent gain for the ETF this year as investors poured $8 billion into the fund.

Optimism about the outlook for economic growth, reduced concern about political turmoil and a jump in corporate profits are underpinning emerging-market assets this year, even as policy makers from Europe to the U.S. signal plans to pull back on stimulus. Developing-economy stocks have climbed to a six-year high and valuations are at levels last seen in January 2010, indicating traders aren’t concerned about the impact of higher interest rates.

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