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A spike in vol in the summer lull

Weekly investor research

21 July 2014

Headlines are habitually assigned excessive importance in Emerging Markets (EM), not least during the summer lull, and geopolitics-related headlines particularly so. While the tragic loss of a Malaysian airliner over Eastern Ukraine and severe violence in Gaza are newsworthy, their impact on sentiment is likely to be much greater than their impact on the economic reality in Emerging Markets. We think that the market generally got it right this time and the increase in price volatility (a measure of sentiment) has been much greater than actual price movements except in the very specific case of Russian assets. This reflects the broadly supportive global economic backdrop painted by the economic data reported over the past week, and the soothing tune of developed markets policy makers.

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