Revisiting the South Korea ETF After the Fed Stands Pat

The iShares MSCI South Korea Capped ETF (NYSEArca: EWY), the largest U.S.-listed South Korea, is usually one of the most docile emerging markets single-country funds, but the ETF has recently been under attack from China’s move to devalue the yuan and concerns about the Federal Reserve’s interest rate policy.

The latter scenario, at least for the time being, has been dealt with as the Fed on Thursday decided to maintain its zero interest rate policy. Perhaps that could be a catalyst to motivate investors to revisit EWY, an ETF that has bled more than $166 million this month. As it is, foreign investors have been nibbling at South Korean equities in recent weeks.

On Tuesday, “foreigners net bought $789 million stocks in emerging Asia ex-China, ex-Malaysia, the single biggest day of inflow since April, data provided by Credit Suisse shows,” reports Shuli Rhen for Barron’s. About $184 million of that total went to South Korean stocks, according to Barron’s.

Mirae Asset Management, though, argues that South Korea and Taiwan are the most exposed to the yuan weakness as China accounts for 39% of South Korea and 29% of Taiwan’s exports.

Higher dividend payouts and stock split are encouraging some investors. Korean companies are facing increased pressure from the government to raise dividends, which are among the lowest of any large economy in Asia. However, with Samsung shares tumbling, shareholder rewards probably are not enough to stoke significant interest in South Korean stocks in the near-term. [Samsung Weighs on South Korea ETFs]