Over the past month, finding an ETF that tracks an emerging Asian nation that has not ripped investors’ hearts out is tricky. One might think the iShares MSCI South Korea Capped Index Fund (NYSEArca: EWY), one of the least volatile single-country emerging markets ETFs on the market, would be a good place to start to find some positivity among Asian ETFs.
It depends on one’s definition of “positive.” EWY is off 6.8% in the past month. That sounds good, sort of, compared to the comparable Philippines and Thailand ETF, but the South Korea has not been an Asian darling, either. At best, EWY is the fourth-best Asia single-country ETF over the past month, trailing the iShares MSCI Taiwan Index Fund (NYSEArca: EWT), the iShares MSCI Malaysia Index Fund (NYSEArca: EWM) and, if you can believe it, the Market Vectors Vietnam ETF (NYSEArca: VNM). [Overseas ETFs With Good Value]
Put another way, EWY has not been all that good over the last month, or this year for that matter as the ETF is down 16.6% year-to-date. Over the past four weeks, the fund has merely been less bad than some of the more volatile Asia ETFs and less bad is not good enough to get the job done for investors.
Making South Korean stocks riskier in the current environment is that the assets class is being attacked from multiple angles. First, South Korean stocks and EWY are showing exaggerated correlation to the Japanese yen. The falling yen is, of course, good for Japanese stocks, and while the CurrencyShares Japanese Yen Trust (NYSEArca: FXY) is 7.7% year-to-date, EWY’s performance is more than twice as worse.
Second, investors have become skittish about emerging markets due to the possible winding down or end of the Federal Reserve’s quantitative easing program. In a report issued Monday to policymakers, the Bank of Korea cited the falling yen and the possibility of an early end to QE by the Fed as the biggest risks facing the South Korean economy, according to Xinhua.
“”In case the reduction or the end of the U.S. quantitative easing is made visible, negative effects will not be small on international financial markets and emerging market economies as well as our economy,” said BoK, according to Xinhua.