With continuous decline in the value of the yen over the past few weeks, Japanese ETFs that are designed to provide hedge against any fall in the currency have continued to rally. At the same time, both currency-hedged Equity ETFs – WisdomTree Japan Hedged Equity Fund (DXJ) and db-X MSCI Japan Currency-Hedged Equity Fund (DBJP) – have exhibited strong performances as the Japanese stock market has continued to rally after the government announced its plans to revive the economy through aggressive monetary easing.
Investors looking for another way to take advantage of the decling yen can look to trade in South Korean ETF, iShares MSCI South Korea Capped ETF (EWY). The trade can be done through put option or outright shorting of the ETF.
South Korean economy which was already facing troubles from the Euro-zone crisis due to poor exports has been further vulnerable due to the rising currency, which has made exports more expensive. The situation is further aggravated by the falling yen which is beneficial to Japanese exporters competing against South Korean exporters.
South Korea, Asia’s fourth largest economy and one of the most stable, showed its strong resilience to the global turmoil and turned out to be one of the best performing economies in 2012 (South Korean ETFs: Best Way to Play Asia?).
However, in the New Year, when the other economies gained strength, South Korea seems to be lagging. Thus, the ETF tracking the region had a poor start to 2013, returning a negative 3.74% year-to-date. (Are Korean ETFs In Trouble?).
South Korea’s housing market is also facing a difficult time due to an aging population and retiring baby boomers, on top of the low-growth environment.
The finance ministry of South Korea expects the economy to demonstrate a mild recovery in 2013 and expects a very modest growth rate of just 3% for the year. Needless to say the economy appears to be in poor shape with certainly no help coming from a rising won.
The fund provides exposure to 106 South Korean stocks while investing $3.3 billion in the portfolio. The volume levels are seen at more than 1.2 million shares a day.
Samsung plays a very dominant role in the fund’s performance as the fund has assigned a healthy 21.7% of its asset base to the company. Samsung continues to gain ground in the smartphone business and is in neck-to-neck competition with Apple's iPhone in terms of sales. Attributable to rising demand for Samsung products and Apple’s earnings miss, the company continues to gain strength (3 Apple Proof ETFs).
Despite Samsung’s solid performance in the near term, the ETF does not seem to be in top form. Other top positions have been allocated to Hyundai and Posco with respective shares of 5.3% and 3.88%. The fund charges an expense ratio of 60 basis points.
Among sector allocation, Information Technology, Consumer Discretionary, Financials, Industrials and Materials get double-digit allocation in the fund.
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