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This Korea ETF Is Luring Traders

ETF Professor

Amid lingering geopolitical tensions, the MSCI Korea 25/50 Index is up 4.63 percent this year, a performance that far trails that of the MSCI Emerging Markets Index.

Stocks in Asia's fourth-largest economy have been rattled by factors including the speculation that North Korea could call off talks with the U.S. about the former's nuclear program.

What Happened

“North Korea is considering suspending talks with the United States and may rethink a ban on missile and nuclear tests unless Washington makes concessions, news reports from the North’s capital on Friday quoted a senior diplomat as saying,” according to Reuters.

Still, the MSCI Korea 25/50 Index managed to climb 2.17 percent last week. On top of that, there is some evidence that traders are embracing a leveraged approach to South Korean stocks.

Why It's Important

The Direxion Daily MSCI South Korea Bull 3X Shares (NYSE: KORU) is the dominant name among leveraged exchange-traded funds with exposure to South Korean stocks. KORU attempts to provide triple the daily returns of the MSCI Korea 25/50 Index.

Last week, KORU jumped 6 percent thanks almost entirely to a gain of 5.56 percent during Friday's trading session. The leveraged South Korea ETF is up 12 percent and could offer aggressive traders more upside because the fund still resides almost 16 percent below its 200-day moving average.

Some data points indicate traders are nibbling at KORU. For the five days ended Thursday, March 14th, volume in KORU was more than 50 percent above the trailing 20-day average, according to Direxion data.

Over the past 10 days, inflows to KORU are equal to 19.10 percent of the fund's assets under management, the leading percentage among Direxion's leveraged ETFs during that period.

What's Next

One issue for traders to consider with KORU, in addition to the aforementioned geopolitical tensions, is that the ETF is essentially a leveraged play on Samsung because shares of the South Korean conglomerate represent almost 21 percent of the index KORU tracks. That means Samsung commands more than quadruple the weight of the index's second-largest component.

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