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A Bullish Case for South Korea ETFs


South Korea exchange traded funds stand out among other emerging markets as the country benefits from a current-account surplus and an arguably undervalued won currency.

The iShares MSCI South Korea Capped ETF (EWY) is up 0.8% year-to-date, outperforming the iShares MSCI Emerging Markets ETF (EEM),  which is down 4.8% year-to-date. [South Korea ETF Poised for More Upside]

“We are very bullish on Korea,” Adrian Mowat, chief Asia and emerging-market strategist at JPMorgan Chase & Co., said in a Bloomberg article. “I want to be in countries that can benefit from strong U.S. growth, yet have current-account surpluses and arguably an undervalued currency.”

South Korea is set for a record 63 billion current-account surplus this year. Meanwhile, the won currency hit a two-year high of 1,050.58 per U.S. dollar on Dec. 11.

The strong current-account balance has attracted foreign investors, whom are supporting the currency. Foreigners acquired a net positive $12.3 billion Korean shares on Seoul’s main bourse in the second half of 2013, the most in three years.

According to Robert Minikin, a senior strategist at Standard Chartered Plc, South Korea will continue to attract foreign investment inflows, particularly from Japan.

“It seems reasonable that Japanese pension funds will look to diversify into overseas assets,” Minikin said in the article. “South Korea, as a relatively liquid emerging bond market with strong economic fundamentals, will be a natural beneficiary.”

The country’s gross domestic product expanded 1.1% in the third quarter over the second quarter.

Investors have choices beyond EWY when it comes to accessing South Korea via ETFs. The First Trust South Korea AlphaDEX Fund (FKO) is the smart beta play on the country while the new WisdomTree Korea Hedged Equity Fund (DXKW) is the first won-hedged alternative. [South Korea ETF Showdown]

iShares MSCI South Korea Capped ETF

For more information on S. Korea, visit our South Korea category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.