The Korea Stock Exchange KOSPI index was up 13% for 2017 as of mid-May, hitting record highs, and still has some of the most attractive valuations among emerging-market nations. Reasons: Global economic growth is surprisingly strong this year, benefiting South Korea, which derives half its annual gross domestic product (GDP) from exports. Also, newly elected President Moon Jae-in has promised to curb corporate and political corruption and reduce tensions with North Korea. Best way to get exposure…
iShares MSCI South Korea Capped ETF (EWY) owns shares in about 105 mostly large-cap companies including automaker Hyundai Motor and Samsung Electronics.
Or for more diversification, the multination iShares Core MSCI Emerging Markets (IEMG), which keeps about 15% of its assets in South Korean companies.
Others South Korea ETFs to consider…
iShares Currency Hedged MSCI South Korea (HEWY) and Deutsche X-trackers MSCI South Korea Hedged Equity ETF (DBKO) both have similar portfolios to the iShares ETF above, but they hedge against swings in currency prices. They work best when the US dollar is strengthening against the South Korean won. The Deutsche fund has a slightly lower expense ratio that should give it an edge in long-term performance.
AdvisorShares KIM Korea Equity ETF (KOR), launched in September 2016, is a more concentrated, actively managed fund—it recently held about 70 different stocks. The managers can deviate from the MSCI Korea benchmark index, and the portfolio includes higher allocations of health care and industrial stocks right now than the above ETFs. The fund gained 23.8% through mid-May.
Among the five ETFs cited above, the unhedged ETFs had the best performance through mid-May 2017 thanks to the weakness of the US dollar against the won. That trend is likely to continue for many months. The iShares MSCI South Korea Capped ETF cited above was up 23% as of mid-May and the AdvisorShares KIM Korea Equity ETF was up 23.8%. The iShares Currency Hedged MSCI South Korea was up 16.8%. And the Deutsche X-trackers MSCI South Korea Hedged Equity ETF was up 14.8%.
Important: ETFs focused entirely on South Korean stocks are typically about twice as volatile as the Standard & Poor’s 500 index because one stock, Samsung Electronics, typically accounts for 20% or more their entire portfolios.