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South Korea ETFs
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About South Korea ETFs |
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South Korea ETFs Overview and forecast
South Korea is one of Asia's powerhouse economies, and the South Korean ETFs are an indication of how much basic economic muscle is behind that economy.
A quick look at our Holdings link for iShares MSCI South Korea Index Fund (AMEX:EWY) will explain a lot about this investment market. http://www.etftips.com/EWY#holdings
This is a typical ishares mix of investments, with a major corporation weighted to generate the returns. But when the heavyweight is Samsung Electronics, and some of the other holdings are Hyundai and LG Electronics, you can see where the investment potentials are. It will also be noted that the trading volumes are among the highest in the world, and that the EWY price managed to rise from $20 to $34 in the period March to end June 2009.
That is not your typical ETF profile. This is a highly active trading market, and the South Korean investment market has managed to maintain base levels of trade in very high volumes by global standards, despite much higher prices. EWY managed to generate very sharp rises, even during the 2008 crash. Price moves are extremely jagged, with very sharp rises noticeable in an environment where volume spikes have a habit of coinciding with lower prices. This is a healthy trading market, and ETF traders could do worse for themselves than to investigate further.
Short term (6 months)
Despite the obvious high energy nature of this market, and a downward dive which is easily the equal of any other market, the South Korean ETFs have been chalk and cheese compared to each other. ishares is operating two fundamentally different models of ETF in South Korea, and they're a study of themselves. It looks like the comparison between EWY and the other South Korean ETF, iShares MSCI Korea ETF (LSE:IKOR) has been decided in favor of EWY, as opposed to the flatlining IKOR. IKOR's volumes are also usually flat. It's a very high priced ETF, with a very bumpy history, and a totally different trading pattern.
In terms of percentile moves, IKOR, because of its price structure, is capable of generating very high levels of return, but it's also capable of dropping them again just as quickly. For prediction purposes, EWY is the model. The short term for EWY is looking very healthy, with an engaged trading base. IKOR may or may not be able to deliver much at all, in the current capital investment market. Institutional buying may have short term effects.
Medium term (2 years)
The South Korean companies are global companies, and the obvious inference that they're also exporters has to be considered. Retail sales are well down, demand is down, and that's the situation that the medium term has to see improve, before there's a genuine upside to the South Korean ETFs.
That means a global recovery, and that's not expected until roughly the end of the medium term, 2011- 2012. Not a very optimistic assessment, but realistic until the US, China, and Europe show signs of significant improvement. If the recession bottoms out earlier in this period, South Korea will be back in business that much sooner.
Long term (5 years)
The long term is looking a lot healthier for the South Korean economy and the South Korean ETFs, even allowing for North Korea's various tantrums. Before the crash, South Korea was performing brilliantly, and its corporations had an unbroken run of growth. Overall, the South Korean investment capital market seems to have held up relatively well, judging by its enthusiasm for buying EWY, and it looks like it will emerge in good condition from the recession.
The possible downside could be a deeper, longer, recession, but that's not yet being considered likely. Exporting nations like South Korea have generally been stopped in their economic tracks by the recession, but are basically OK otherwise, unless the longer term turns nasty. The long term upside for the South Korean ETFs is looking very positive, in any other scenarios.
Qualifiers to projections
South Korea is a complex place. Economically, it's been doing well, but socially and in terms of the domestic economy, it's also a far from simple place. South Korean politics can be a ferocious, and in terms of investment markets, worrying, thing. The on again/ off again dialog with North Korea also has some ramifications for the South's economy, particularly if unification ever happens. It would be like rebuilding East Germany, but worse, and expensive.
An actual confrontation, or worse, a war, with the North, would also be expensive, in more ways than one. Irrational as it might seem, North Korea is generally regarded as the one true loose cannon in Asia. That's not much of a character recommendation, but it's a factor in South Korean daily life. A war is an actual possibility. That expense sort of cost will inevitably also hit revenue, which in turn would hit capital markets. Any significant drop in revenue really has to be passed on to the rich capital sector, because the domestic economy, if strong, isn't the sort of tax base to cover costs like that.
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Last Updated on: 2010-01-14 02:03:40 |
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