South Korea ETFs Prove Resilient
The iShares MSCI South Korea Capped ETF (NYSE: EWY) has gained 8.3 percent since June 20, an impressive performance under any circumstances, but one that is even more so when remembering that stocks in nearly every Asian emerging market have been sliding over the same time.
South Korean stocks along with EWY have also proven resilient as Federal Reserve tapering chatter has increased. Tapering of the Fed's quantitative easing efforts has previously been highlighted as one of the two biggest risks facing Asia's fourth-largest economy.
Give EWY some credit. The fund is up 0.6 percent over the past five trading days, a time frame that included the release of minutes from the Fed's July meeting. Those minutes showed support for tapering, though without a clear-cut time frame.
Solid economic data have helped South Korean shares remain sturdy. The economy posted its fastest level of growth in nine quarters for the April-June period while short-term external debt fell to a six-and-a-half-year low during the same period, according to CNBC.
Last week, HSBC Global Asset Management joined a chorus of major global banks that have recently sounded bullish tones on South Korean stocks, citing compelling valuations. Goldman Sachs, Citigroup, JPMorgan Asset Management and Charlemagne Capital have also recently made similar calls.
Related: The South Korea ETF Myth.
EWY has a P/E ratio of less than 16.2 compared to 19.6 for the slumping iShares MSCI Brazil Capped ETF (NYSE: EWZ).
The often overlooked First Trust South Korea AlphaDEX Fund (NYSE: FKO) has a P/E of just 11.4 and a price-to-book ratio barely above one. Year-to-date, FKO has been less bad than EWY and over the past five days, the First Trust offering is up nearly 2.2 percent. That is not surprising given that other First AlphaDEX ETFs, including international funds have outpaced larger, cap-weighted rivals.
HSBC Asset Management advised buying financial services and energy shares, according to Bloomberg. South Korea is not an energy-rich country, so that sector is not a major player in EWY or FKO. However, financial services account for14.8 percent and 15.5 percent, respectively, of each fund's weight.
Here is another interesting fact about South Korean stocks, at least the group represented by EWY: The ETF has traded higher by 4.55 percent since June 28. That is the first day the Vanguard FTSE Emerging Markets ETF (NYSE: VWO) traded without any exposure to South Korea. South Korea is the second-largest country weight in the rival iShares MSCI Emerging Markets ETF (NYSE: EEM) at 15 percent behind China.
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Disclosure: Author is long EWZ and VWO.
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