In an attempt to revive their economy and exchange traded funds (ETFs), South Korea may be forced to cut its interest rate once again.
The interest rate in the Asian country has been already been slashed six times since October, and may be cut for a seventh time down to 1.75%. The country has been hit hard by the global recession and is suffering due to canceling of orders by shipbuilders and the demise of the won because of the country’s foreign currency liabilities, states Cheon-Jong Woo and Rhee So-eui of Reuters.
In addition to this potential rate cut, the country has taken the following measures to save their economy and soften the blow of its 3.4% contraction:
- Injected $39 billion into the banking system to help companies that face a shortage of dollars and a struggle to refinance overseas loans, states Seyoon Kim of Bloomberg.
- The government is setting up a $13.4 billion fund to replenish bank capital as bad loans increase and another fund that will buy distressed corporate bonds.
- Pleading with the United States to agree to an extension of its $30 billion currency-swap agreement with the country.
South Korea is not the only one in deep water. The European Central Bank cut its rates to a record low 1.5% and the Bank of England slashed its rate down 0.5%. To make it even worse, industrial production is at record lows and overseas shipments declined 17.1% in February. All we can hope for is that we have hit rock bottom and are working our way out of this devastating financial and economic crisis that is hovering over the entire world.
An ETF that tracks South Korea is the iShares MSCI South Korea (EWY), which is down 11% year to date
Another ETF to take a look at is the iShares MSCI Emerging Markets Index (EEM), which is down 6.4% year to date, holds 11.3% of its assets in South Korea and is flirting with its 50-day moving average.
For full disclosure, some of Tom Lydon’s clients own shares of EEM.
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.