Muted Reaction to Rate Cut for South Korea Hedged ETFs

The Bank of Korea, South Korea’s central bank, joined the spate of global central banks lowering interest rates when pared borrowing costs to a record low of 1.75% earlier Thursday.

In becoming at least the 24th central bank to lower rates this year, and one of a growing number of emerging markets central banks to do so, Bank of Korea surprised economists as just two of 17 surveyed by Bloomberg forecast a rate cut.

Currency hedged South Korea exchange traded funds are experiencing mixed reactions to BOK’s surprise rate cut. For example, the Deutsche X-trackers MSCI South Korea Hedged Equity ETF (NYSEArca: DBKO) is trading slightly lower today though volume in that ETF is more than seven times the daily average. On light volume, DBKO’s rival, theWisdomTree Korea Hedged Equity Fund (NasdaqGM: DXKW), is trading modestly higher. [Put South Korea ETFs on Your 2015 Lists]

As has been seen across the currency hedged ETF landscape this year, South Korea hedged ETFs are easily topping their non-hedged peers as the U.S. dollar strengthens. Entering Thursday, South Korea’s won was down 3.5% this year against the greenback, helping DBKO and DXKW to year-to-date gains of 2.8% and 7.5%, respectively, while the iShares MSCI South Korea Capped ETF (NYSEArca: EWY) is up just 0.8%.

DXKW is the older of the two South Korea hedged ETFs with a November 2013 debut date. DBKO, which debuted in January 2014, is the larger of the pair with $64.1 million. Combined, the two ETFs have just under $84 million in assets under management, but there are catalysts in place that could give tactical investors reasons to consider currency hedged exposure to Asia’s fourth-largest economy.