VIX dips below 30 – on Friday the VIX Index dipped below 30 for the first time since late February in a signal that option markets are betting on less volatility the next 30 days. The VIX futures term structure has also shifted into the classic contango which should begin to favour selling volatility strategies. This means that the market is structurally beginning to set itself up for normality. The equilibrium point in VIX is historically around 22 so if the index dips below this we are officially out of the bear market dynamics.
Brazilian equities down 51% from peak – while many equity markets have recovered somewhat the Brazilian equity market is still down significantly from the peak in USD terms. Sentiment is obviously bad due to a gross mismanagement of the COVID-19 outbreak by the government but with Brazilian equities valued at a 55% discount to global equities it may be worth making a bet on this EM market. Given the uncertainty over EM markets and the rebound one should consider placing the bet with call options on the main index or an ETF tracking the equity market.