The iShares MSCI South Korea Capped ETF (NYSEArca: EWY) has traded slightly higher this year and the largest exchange traded fund tracking South Korean stocks is up following the recent summit between North Korea and South Korea.
However, some market observers believe that while the summit was encouraging, regional geopolitical risks linger for South Korea, Asia’s fourth-largest economy.
“The summit meeting between the leaders of North and South Korea eases tensions on the peninsula, which have been elevated in recent months, but does not eliminate risks associated with the military stand-off,” said Fitch Ratings in a recent note. “The process of normalizing relations is likely to be lengthy and unpredictable, even if begun in earnest.”
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EWY, which tracks the MSCI Korea 25/50 Index, holds 113 stocks. The $4.39 billion fund is one of the oldest and largest emerging markets single-country exchange traded funds.
EWY has a three-year standard deviation of just over 17%, which is low compared to many other single-country emerging markets funds. That historical lack of volatility is one reason why EWY is a favorite among investors.
“The long-term stand-off results in geopolitical risks to South Korea’s sovereign balance sheet. These relate not only to the potential for conflict, but also to the possibility of reunification costs arising over the long term,” according to Fitch.