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South Korea ETFs Ignore Rate cut, Pressured by Samsung


Shares of the iShares MSCI South Korea Capped ETF (EWY) , the largest U.S.-listed South Korea exchange traded fund, are off half a percent today on reports that Samsung’s smartphone sales are faltering in China.

Squeezed at the high end by bitter rival Apple (AAPL) and at the low end by Chinese upstarts such as Huawei and Xiaomi, Samsung saw its popularity in China cut in half from the second quarter of 2013 to the second quarter of 2015 and has suffered a similar drop since then, according to the Financial Times. Just 7.4% of prospective Chinese smartphone buyers are expected to purchase a Samsung phone, the FT reports.

With Samsung accounting for 20.4% of EWY’s weight, it is no wonder investors are focused on the company and South Korea’s MERS outbreak rather than the Bank of Korea paring interest rates Thursday to 1.5%, the central bank’s fourth such reduction in 10 months.

Those issues are also hampering EWY’s currency hedged rivals, the Deutsche X-trackers MSCI South Korea Hedged Equity ETF (DBKO) and the WisdomTree Korea Hedged Equity Fund (DXKW) . Both ETFs are trading slightly lower today, though outperforming EWY. Samsung has dominant positions in those ETFs as well, accounting for 20.5% of DBKO and 8.1% of DXKW. [Muted Reaction to Rate Cut for South Korea Hedged ETFs]

Thanks to Bank of Korea’s accommodative ways, DBKO and DXKW, like scores of other single-country currency hedged ETFs, have topped their unhedged rivals this year. The South Korea currency hedged ETFs are up an average of 2.7% year-to-date, roughly two and a half times to 1.2% gain posted by EWY.

Bank of Korea’s rate-cutting, particularly in the case of DBKO, is also driving assets to the currency hedged South Korea ETFs. DXKW, the WisdomTree, offering has added $15.3 million in new assets this year, or 77% of its current assets under management tally. DBKO’s growth has been even more staggering. At the end of 2014, DBKO was home to just $3.5 million in assets, a number that has since grown to almost $132.5 million. [Stunning Growth for This Currency Hedged ETF]

In the essence of having some fun, we look to LeBron James as a potential catalyst for South Korea ETFs. Perhaps “The King,” a paid spokesman for Kia and Samsung, should stop giving his teammates Apple watches and make the world believe he actually, even if just once and a while, drives a Kia. Samsung and Kia combine for 22.3% of DBKO’s weight.

Deutsche X-trackers MSCI South Korea Hedged Equity ETF