South Korea is one of Four Asian Tigers, as well as Hong Kong, Taiwan and Singapore, a group known for decades of rapid economic expansion. Since the 1960s, very few countries have experienced such steady and explosive economic growth as South Korea, which is Asia’s fourth largest economy behind India, Japan and China.
South Korea’s economy grew 4% in 2021, the biggest increase in 11 years, amid strong exports and business investment. For the whole of 2021, the nation Gross Domestic Product (GDP) expanded to $1.6 trillion. Most recently, in the second quarter of 2022, South Korea’s GDP growth beat estimates to increase by 0.7%. Household and government spending fueled this growth despite inflation and the effects of the Russian invasion of Ukraine.
Investors seeking exposure to the South Korean economy may consider exchange-traded funds (ETFs) focused on South Korean stocks.
Key points to remember
- South Korean stocks have significantly underperformed the broader US stock market over the past year.
- Of them South Korean exchange-traded funds (ETFs) are currently traded in the United States: EWY and FLKR.
- The main holding of each of these funds is Samsung Electronics Co. Ltd.
There are two separate South Korean ETFs that trade in the United States, except reverse and leveraged funds and those with less than $50 million in assets under management (AUM). South Korean equities, as measured by the MSCI Korea Index, have significantly underperformed the broader US market over the past 12 months, with a total return of -32.1% compared to the total return of the S&P 500 by -3.7%, as of August 10. , 2022. The best performing South Korean ETF, based on past year performance, is the iShares MSCI South Korea ETF (STANDBY). We take a look at the two South Korean ETFs below. All figures below are as of August 11, 2022.
- One-year performance: -29.2%
- Expense ratio: 0.57%
- Annual dividend yield: 0.80%
- Three-month average daily volume: 3,381,728
- Assets under management: $3.1 billion
- Date of creation: May 9, 2000
- Issuer: BlackRock Financial Management
EWY tracks the MSCI Korea 25/50 Index, which measures the overall performance of the mid capitalization and large cap segments of the South Korean stock market. The fund follows a value based investing strategic and may appeal to investors seeking tactical exposure to the South Korean market or targeted exposure to international equities.
Nearly 33% of EWY’s holdings are allocated to the information technology (IT) sector. Consumer discretionary receives the second largest weighting at around 12.2%, followed by industrial stocks at 11.7%. EWY’s main holdings are Samsung Electronics Co. Ltd. (005930:KRX), a manufacturer of consumer and industrial electronics equipment and products, which accounts for approximately 20% of EWY’s portfolio; SK Hynix Inc. (000660:KRX), a manufacturer of semiconductor products; and Samsung SDI Co. Ltd (006400:KRX), manufacturer of batteries and electronic equipment.
- One-year performance: -29.6%
- Expense ratio: 0.09%
- Annual dividend yield: 1.75%
- Three-month average daily volume: 12,320
- Assets under management: $53.4 million
- Creation date: November 2, 2017
- Issuer: Franklin Templeton
FLKR tracks the FTSE South Korea capped index, a market capitalization– weighted index composed of medium and large capitalization companies. The ETF follows a strategy focused on value stocks and is weighted towards large caps.
Around 32% of the fund’s holdings are allocated to the IT sector, followed by industrials and consumer discretionary. One of the appeals of the FLKR is its low expense ratio, allowing direct access to South Korean stocks at a low price compared to other alternatives. Its three main holdings are Samsung Electronics, SK hynix and NAVER Corp. (035420:KRX), a provider of web services such as search engines and online advertising.
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