The Direxion Daily South Korea Bull 3X Shares (KORU) is up just over 3.5% for the year. But economic headwinds remain for South Korea’s economy through the rest of 2023, which could challenge the ETF.
Despite potential challenges, South Korea’s economy did manage to grow, beating expectations from a survey of Bloomberg economists. Like the rest of the world, its central bank is having to contend with rising inflation and tailoring interest rate policy without upsetting growth.
“South Korea’s economy grew more than expected at the beginning of the year, providing the central bank with breathing room while also highlighting ongoing risks to growth,” the aforementioned Bloomberg report said.
The first quarter of 2023 revealed positive growth compared to the final quarter of 2022. This helped South Korea from entering a recession based on the previous quarter of negative growth.
“Gross domestic product advanced 0.3% in the first quarter, rebounding from the final three months of 2022, when it contracted 0.4%,” as mentioned in the report. “The latest data compares with estimates for a 0.2% expansion in a Bloomberg survey of economists.”
The first quarter saw a boost from re-opening its doors, especially to tourists — a prime source of revenue. South Korea had to contend with a rise in COVID-19 cases last year and just recently dropped its quarantine mandates.
“Given consumption for leisure and tourism services was particularly strong, we think the reopening boost has continued,” said Min Joo Kang, senior economist for South Korea and Japan at ING, per an Al Jazeera report.
Economic Headwinds Ahead
Despite the positive first quarter, challenges remain for the year. Inflation will continue to be a growth detractor, lowering GDP forecasts based on decreasing demand in certain sectors, particularly semiconductors and other exports.
“South Korea’s state-run think tank has cut its gross domestic product and inflation forecasts for 2023, citing the country’s shrinking exports on sluggish demand for semiconductors and other Korean goods overseas,” a Wall Street Journal report said.
The Korea Development Institute expects the economy to grow by 1.5% this year, which comes at a slower pace than its February projection of 1.8% growth, the Wall Street Journal report noted. As such, traders may want to keep an eye on how South Korea responds to growth challenges before diving into a leveraged ETF like KORU.
KORU seeks daily investment results, before fees and expenses, of 300% of the daily performance of the MSCI Korea 25/50 Index. The index measures the performance of the large- and mid-cap segments of the South Korean equity market, covering approximately 85% of the free float-adjusted market capitalization of South Korean issuers.
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