Markets Indicated Higher-than-Usual Downside Risk for EAFE and EM

Using option-implied-volatility skew — a measure often used to gauge downside vs. upside risk — we have seen a substantial increase in EAFE and EM index skew since the start of the war. While this measure has historically been more pronounced in the U.S. markets, the change there was rather muted. This may indicate heightened risk aversion for international exposures. While the skew has more recently come down for EAFE and EM, we still observe higher-than-normal downside risk in those regions.