ETF Talk: Export-Driven South Korea May Thrive with Global Upturn

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

South Korea did not enter a recession during the global economic crisis of 2008 and it seems likely to outperform in the coming months as the global economic situation improves. If you want to invest in this robust market, then put the iShares MSCI South Korea Capped (EWY) on your watch list.

This non-diversified exchange-traded fund (ETF) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of an index of stocks primarily traded on the Stock Market Division of the Korean Exchange. This fund is focused on the large and mid-cap segments of the Korean market.

Keep in mind that South Korea has an export-oriented economy, so economic growth elsewhere should lift its prospects. As of 2012, South Korea is the sixth-highest exporter in the world. The country’s resilience during the 2008 global economic slump stemmed from internal demand in this high-income, developed economy of more than 50 million people.

While EWY has slipped a bit in 2013, last year’s gain was 3.9%. The yield, for investors interested in additional income, is 0.63%. This yield reflects South Korea’s improving export picture as some of its big trading partners — Japan, the United States, and Europe — are recovering, as well.

EWY 092513

The fund’s top 10 holdings account for 49.54% of its total assets. Of these, the top five are Samsung Electronics Co. Ltd, 21.44%.; Hyundai Motor Co., 6.20%; POSCO, 3.36%; Hyundai Mobis Co., Ltd, 3.21%; and Shinhan Financial Group Co. Ltd., 3.04%. The sectors in which the fund is most heavily invested are information technology, 31.25%; consumer discretionary, 19.15%; financials, 14.27%; industrials, 13.68%; and materials, 10.46%.

South Korea’s high internal demand serves as something of a cushion, but its export-oriented economy is vulnerable to a downturn in Europe or continued anemic growth in the United States and Japan. An additional factor to consider is that hostilities with North Korea are an ever-present danger, as the two countries are officially still at war. However, if you like South Korea as an investment opportunity, you may want to check out iShares MSCI South Korea Capped (EWY).

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to email me by clicking here. You just may see your question answered in a future ETF Talk.

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