South Korea wasn’t reclassified as a developed market by benchmark manager MSCI (NYSE: MSCI) in a recent review as some investors had expected. An exchange traded fund that invests in the country is holding slim gains for 2011.
South Korea’s government reported weaker numbers for the first quarter. The slower-than-expected growth could continue and dampen the performance of the economy and the ETF — iShares MSCI South Korea (NYSEArca: EWY) is up about 2% for this year.
The South Korean economy expanded a downwardly-revised 1.3% in the first quarter from the fourth quarter of 2010, reports In-Soo Nam for The Wall Street Journal.
The Bank of Korea believes that growth in the first quarter was hampered by a drop in domestic demand and slower facility investments. The BOK calculates that second quarter growth will tack on 1% over the first quarter and expects the economy to expand 4.5% for 2011.
Analysts project that the economy will gain 0.8% to 1% in the second quarter over the first quarter as inflation levels remain higher due to commodities prices. Oh Ryan, analyst at Samsung Securities, attributes the slowdown to “weaker momentum in Korea’s industrial production, consumption and investments.”
“Indicators such as production, consumption and investment are somewhat slowing,” said the finance ministry on Thursday, according to Yonhap News. “We will strengthen our response to risk factors for our economy, while at the same time improving the nation’s economic fundamentals and solidifying its growth base through such efforts as boosting domestic demand,” the ministry added. [Emerging Market ETFs Could Be On Course For A Turnaround.]
During May, core inflation hit a two-year high of 3.5% year-over-year. The Central Bank has kept rates at 3%, and market observers believe rates will remain unchanged for the short-term.