The iShares MSCI South Korea Capped ETF (EWY) , the largest U.S.-listed South Korea, is usually one of the most docile emerging markets single-country funds, but the ETF has recently been under attack from China’s move to devalue the yuan and concerns about the Federal Reserve’s interest rate policy.
The latter scenario, at least for the time being, has been dealt with as the Fed on Thursday decided to maintain its zero interest rate policy. Perhaps that could be a catalyst to motivate investors to revisit EWY, an ETF that has bled more than $166 million this month. As it is, foreign investors have been nibbling at South Korean equities in recent weeks.
On Tuesday, “foreigners net bought $789 million stocks in emerging Asia ex-China, ex-Malaysia, the single biggest day of inflow since April, data provided by Credit Suisse shows,” reports Shuli Rhen for Barron’s. About $184 million of that total went to South Korean stocks, according to Barron’s.
Mirae Asset Management, though, argues that South Korea and Taiwan are the most exposed to the yuan weakness as China accounts for 39% of South Korea and 29% of Taiwan’s exports.
Higher dividend payouts and stock split are encouraging some investors. Korean companies are facing increased pressure from the government to raise dividends, which are among the lowest of any large economy in Asia. However, with Samsung shares tumbling, shareholder rewards probably are not enough to stoke significant interest in South Korean stocks in the near-term. [Samsung Weighs on South Korea ETFs]
The low energy prices and cheap financing have also supported investor sentiment and positive outlook for earnings growth ahead. South Korea is a net energy importer, implying that it is one of the emerging markets that should be benefiting from low energy prices.
Investors betting that the Bank of Korea’s efforts to weaken the won while propping up South Korean stocks can considered currency hedged ETFS, including the Deutsche X-trackers MSCI South Korea Hedged Equity ETF (DBKO) and the WisdomTree Korea Hedged Equity Fund (DXKW) .
iShares MSCI South Korea Capped ETF
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.