Anxiety grips emerging-market volatility index in biggest jump on record

A screen displays the Dow Jones Industrial Average, after the closing bell on the floor of the New York Stock Exchange on Aug 24, 2015.
A screen displays the Dow Jones Industrial Average, after the closing bell on the floor of the New York Stock Exchange on Aug 24, 2015.PHOTO: REUTERS

NEW YORK (BLOOMBERG) - The rout in markets from China to South Africa triggered a record jump in a gauge of options prices on developing-nation stocks as investors purchased contracts to protect against future declines.

The benchmark - called the CBOE Emerging Markets ETF Volatility Index - more than tripled as trading began at 9:30 am in New York. The selloff in developing nations took a turn for the worse on Monday as Chinese equities fell the most since 2007. The measure jumped 66 per cent to 55.17 at the close on Monday for the biggest gain on record.

Investors are paying more to protect against declines on the iShares MSCI Emerging Markets exchange-traded fund, which tracks 845 companies in developing nations. The ETF lost 4.4 per cent to $31.32, a July 2009 low, while the MSCI Emerging Markets Index fell 5 per cent to 771.77, the most since September 2011.

"What we are seeing right now is a panic selloff," said Tim Ghriskey, who helps oversee US$1.5 billion including developing- nation stocks as managing director and chief investment officer at Solaris Asset Management. "The selloff is to a big extent commodity-driven, with equities from Russia to Brazil tumbling, and the slowdown in growth in China is also a very important driver."

The Shanghai Composite Index slid 8.5 per cent as concern mounted that China's economic slump is deepening and government measures to stop it will fail. A further slowing of growth in the world's second-largest economy would undermine demand for commodities and curtail imports from countries including Brazil, South Africa and Russia - all of which count China as their biggest trading partner.