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Can South Korea ETFs Continue to Surge after Presidential Election?

Liberal Democratic Party candidate Moon Jae-In was elected as President of South Korea on May 9, 2017. He replaced Park Geun-Hye who was arrested in March amid corruption charges and is awaiting trial for the same (read: Asian Markets Give Mixed Signals: ETFs in focus).


The National Election Commission said Moon, who vows to make peace with North Korea, received 41.08% of the votes. His stance is in stark contrast to Donald Trump’s hardline approach toward Kim Jong-Un’s nuclear threats. Moon vows to bring back the Sunshine Policy, which was adopted in the period 1998-2008, aiming to improve relations between the two regions.


However, the people of South Korea are more concerned about the prevailing corruption and economic growth worries in their country and would like these issues to be addressed first.


“I come in with empty hands and will leave with empty hands,” Moon said. He has promised to be a President of the people and review ties between political parties and South Korean family-run businesses called chaebol to bring an end to widespread corruption.


The Bank of Korea in April said it expects the economy to grow 2.6% in 2017, amid increased worries regarding trade deals with major countries coupled with lower domestic demand growth (read: Steel ETF Declines as Tax Ruling Disappoints).


Moreover, the new President has promised to review the rushed deployment of the Terminal High Altitude Area Defense (THAAD) by the erstwhile government and the U.S., an event opposed by the Chinese. However, this might dent relationships with Washington, South Korea’s strongest security partner (read: South Korea ETFs in Focus on Rising Military Tensions).


Though it was an easy electoral victory for Moon, he has inherited a stressed economy. It will thus be interesting to see how he tackles the current issues that the country faces.


Given the current scenario, let’s discuss a few South Korea ETFs.


iShares MSCI South Korea Capped ETF EWY


This fund is the most popular in the space offering exposure to South Korean equities.


It has AUM of $3.31 billion and charges 64 basis points in fees per year. Information Technology, Financials, and Consumer Discretionary take the top three spots with 38.40%, 14.44%, and 13.39% allocation, respectively (as of May 8, 2017). Samsung Electronics Ltd, Sk Hynix Inc, and Hyundai Motor are the top three stocks with 24.38%, 4.30%, and 3.15% allocation, respectively (as of May 8, 2017). The fund returned 29.31% in the past one year and 23.34% in the year-to-date time frame (as of May 9, 2017).


AdvisorShares KIM Korea Equity ETF KOR


This fund seeks to offer exposure to South Korean growth equities in the mid-to-large cap segment.


It has AUM of $9.60 million and is relatively expensive as it charges 99 basis points in fees per year. Information Technology, Industrials, and Consumer Discretionary take the top three spots with 28%, 19%, and 13% allocation, respectively (as of March 31, 2017). Samsung Electronics Co Ltd, Naver Corp, and CJ CheilJedang Corp are the top three stocks with 18.56%, 4.06%, and 3.01% allocation, respectively (as of March 31, 2017). The fund returned 21.25% in the year-to-date time frame (as of May 9, 2017).


First Trust South Korea AlphaDEX Fund FKO


This fund seeks to employ quantitative based screening techniques to identify stocks poised to generate great alpha.


It has AUM of $5.07 million and is relatively expensive as it charges 80 basis points in fees per year. Industrials, Financials, and Consumer Discretionary take the top three spots with 19.64%, 19.20%, and 16.29% allocation, respectively (as of May 8, 2017). Hyundai Heavy Industries Co Ltd, Hyundai Engineering & Construction Co Ltd, and SK Holdings Co Ltd are the top three stocks with 3.46%, 3.40%, and 3.34% allocation, respectively (as of May 8, 2017). The fund returned 12.44% in the past one year and 15.89% in the year-to-date time frame (as of May 9, 2017).


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ADVSR-KIM KOREA (KOR): ETF Research Reports
 
ISHARS-S KOREA (EWY): ETF Research Reports
 
FT-S KOREA AD (FKO): ETF Research Reports
 
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