ETF Trends
ETF Trends

Stuck in the ongoing global doldrums, South Korea’s economy and exchange traded fund (ETF) may be experiencing the impact of being heavily reliant on economic conditions abroad.

On Monday, South Korea’s currency fell to 1,570.30 against the U.S. dollar, a low last seen in 1998 when the country was drudging through the Asian financial crisis, according to the International Herald Tribune. Investors dumped stocks under general economic pessimism and domestic fears of a dollar shortage. The benchmark Korean Stock Price Index hit a three month low after the contagious selloff in U.S. markets.

The general consensus is that a balance of payment crisis is remote, which is attributed to South Korea’s sixth-largest foreign exchange reserves of $201.74 billion.

Industrial output dropped 25.6% in January compared to the same month last year, and the economy contracted 3.4% in the 4th quarter. South Korea lost 103,000 jobs in January.

Exports diminished by 17.1% from a year earlier after January’s 33.8% drop, reports Seyoon Kim for Bloomberg. Imports also receded 30.9% in February compared to the same month last year, which actually helped create a trade surplus of $3.3 billion last month.

The South Korean government has agreed to use around $33.6 billion in tax cuts and spending. The Finance Minister also plans an extra budget package that may soon be unveiled. The Central Bank had already cut the benchmark interest rate to 2%, a record low, back in February 12th.

In the last few weeks, financial officials coordinated efforts to sidestep a currency fiasco last seen a decade ago, according to Reuters India. South Korea has recently sold more dollars in order to defend a weakening won and the Finance Minister has reassured currency traders that the won won’t fall further.

  • iShares MSCI South Korea Index (EWY): down 14.9% in the last month; down 3.8% in the last three months; down 70% since its high on Oct. 31, 2007

ETF EWY performance

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.