The iShares MSCI South Korea Capped ETF (NYSEArca: EWY), like so many other exchange traded funds tracking large emerging markets, did not start 2013 on a strong note.
South Korea’s export dependent economy, Asia’s fourth-largest, was seen as vulnerable to a weak yen. Policymakers and central bankers there publicly admitted their economy was also vulnerable to tapering of the Federal Reserve’s quantitative easing program. Even a May interest rate cut did not do much, at least not immediately, to foster confidence in South Korean equities. [South Korea ETF Falls After Rate Cut]
Things changed for the better for EWY and its holdings in third quarter as a slew of global banks upped their views on South Korean stocks due in large part to attractive valuations. While the specter of the weak yen is not gone, tapering, in all likelihood, will be delayed for another four or five months. That has helped EWY surged 15.3% in the past three months. Over the same time, the comparable China, Hong Kong and Taiwan ETFs are each up about 6%.
EWY’s substantial out-performance of the iShares MSCI Taiwan ETF (NYSEArca: EWT) is important, because like EWY, EWT is often viewed as a lower beta, less volatile emerging markets ETF. The market has preferred EWY, an ETF that earlier this month saw noticeable inflows. [Cash Pouring in to South Korea ETFs]
Although South Korean shares have impressed over the past few months, some market participants still see attractive valuations there. BlackRock, the world’s largest asset manager, is overweight South Korea and believes stocks there are “cheap and attractive compared to the region,” Sharon Cho reports for Bloomberg.
Foreign ownership of Kospi index companies has climbed to more than 35 percent of outstanding shares, the highest level since July 2007, Bloomberg reported, citing the Financial Supervisory Service.
Following the near meltdown for developing markets earlier this year, EWY has come into the spotlight because South Korea has two traits emerging markets investors now prize: A strong currency and a current account surplus.
EWY has perhaps gotten a modest boost from investors looking to stay engaged in emerging markets while using an ETF that is perceived to be conservative relative to BRIC funds or ETFs that offer exposure to Southeast Asian nations. EWY’s three-year standard deviation is more than 300 basis points below that of the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ), according to iShares data.
iShares MSCI South Korea Capped ETF
ETF Trends editorial team contributed to this post.