As emerging markets exchange traded funds slid to start 2014, those tracking South Korean stocks were no exception.
In the ETF wrapper, South Korea, Asia’s fourth-largest economy, has developed a reputation for being one of the most advanced, conservative and lowest beta/least volatile emerging markets accessible to ETF investors.
That reputation was betrayed earlier this year as the iShares MSCI South Korea Capped ETF (NYSEArca: EWY) tumbled along side scores of other more volatile emerging markets ETFs. To be fair, EWY has also participated in the emerging markets rebound, gaining 6.6% since the start of February. [South Korea ETFs Betray Low Beta Reputation]
There is also a new South Korea ETF on the scene, the Horizons Korea Kospi 200 ETF (NYSEArca: HKOR), the first South Korea to use the benchmark Kospi 200, that country’s equivalent of the S&P 500, as its underlying index.
“HKOR will be the lowest-cost (0.38% Total Gross Expense Ratio) and most broadly diversified Korean equity ETF in the U.S.” said Howard Atkinson, Managing Director, Horizons USA, in a statement. “Korea is often listed as an emerging market economy, but with a well-established manufacturing base and steady GDP growth, it has an economic profile that is more in line with well-established developed markets, generally making it a more stable entry point into emerging market investing.” [A New ETF Ellen DeGeneres Would Love]
It looks like the time is right for investors to reconsider EWY or take a close look at HKOR, regardless of the latter’s rookie status.
“Price is ultimately what matters with any investment. And on this front, South Korea looks attractive. It’s the cheapest market in Asia, trading at just 8.8x this year’s earnings, a 24% discount to Asia ex-Japan’s 11.6x PER. Consensus forecasts 13% earnings growth in 2014, versus 12% for the Asian region,” writes James Gruber for Investing.com.
Investors have been hearing, for quite a while, that emerging markets are inexpensive, but that is particularly true of South Korea. That presents a compelling scenario for investors to limit emerging markets risk while gaining exposure to discounted stocks.