Korea Investing Guide
- Part of Series - India 2030 Series: Lessons from Success in Other Countries
- See also GeoPolitics-Economic-Politics Guide and Series
- International Investing Strategy
- South Korea Investing
South Korea Investing
South Korea has since the 1960s a major ally of the US, given a favored nation status and counter to mainland China along with Taiwan. It has had a consistent and explosive economic growth pattern and is the third-largest economy in Asia, trailing only China and Japan.
Its GDP per capita, at around $32,000 by IMF estimates, is slightly above the European Union average and is higher than Spain and Italy.
Demographic wall to be hit as its fertility rate, at 1.24 children per mother, is SUPER low - eventually hurting people available to work or produce!
Politically, the Korean business groups known as chaebol eg Samsung, etc. have deep ties with political masters of the country. This helped post WWII in giving great banking support and international trading.
Market Timing - 2020 Crisis but market still up!
- Bank of Korea has cut rates twice since Mar'20.
- June 2020 - Seoul announced a 35.3 trillion won, or $28.8 billion supplementary budget that raised the total stimulus to 270 trillion won or 15% of GDP for the economy as the country tries to recover for its worst growth since the 1998 Asian financial crisis. This was to protect jobs broad shutdown measures to quarantine the contagion. Money will be spent to bolster consumption and loans will be made to small- to medium-sized businesses suffering from the slump in sales and reduced consumption.
- Exports have declined on reduced consumption globally, (even as China has strongly rising export surplus).
- End 2020 RISK of debt - GDP to fall 0.1% from 2.4$ earlier. Raise debt-to-GDP to 44% from 40% end 2019.
EWY 0.59% exp $5b aum 113 stocks
- Managed by Blackrock 0.59% exp, Launched 2000
- It has $5b aum - 30x larger than next
- It dominates foreign investors as GDRs banned for Americans, and even major companies like Samsung just not available in any liquidity even on grey market OTC.
Track MSCI Korea 25/50 Index of stocks on the Korea Exchange. The Index is a free float-adjusted market capitalization-weighted index with a capping methodology applied to issuer weights so that no single issuer exceeds 25% of the Underlying Index weight, and all issuers with a weight above 5% do not cumulatively exceed 50% of the Underlying Index weight.
Top 10 holdings already 50% of holdings
- Samsung 21% (other subsidiaries or group companies probably >5% on top)
- POSCO (PKX), Hyundai (HYMTF) and LG Chemical.
- Underlying Index has heavy Concentration risk - heavy >25% in IT, significant concentration in Autos/Industry/Chemicals
- Heavily Large Cap Weightings
DXKW exp 0.58% - more diversified
- WisdomTree Korea Hedged Equity Fund - Hedged meaning currency
- Very low volume 4,900 vs EWY 2.5m shares/day
- Unlike EWY which has 22% in samsung electronics a mature company, DXKW has 9.5% invested in it and another 6% invested in Samsung SDI that makes lithium batteries a growth industry.
- Hedging, EWY is not hedged against movements in the value of the South Korean won, whereas DXKW is. The won has added volatility to the Korean market for U.S. and other foreign investors. The currency lost 54% of its value during the Asian financial crisis of 1998, and it lost 41% during the 2008 global crisis.
- BUT in 2020 Q3+, Dollar is weakening so, one problem is the value of the won rises relative to the dollar, you will not profit from this upside.
HEWY 0.59% USD-hedged
iShares Currency Hedged MSCI South Korea ETF The underlying MSCI South Korea 25/50 100% Hedged to USD Index consists of stocks traded primarily on the Stock Market Division of the Korea Exchange with the currency risk of the securities included on the Underlying Index hedged to the U.S. dollar on a monthly basis. The fund charges 59 bps in fees and added about 1.6% in the past three months.
DBKO 0.58% USD/Won hedged
Xtrackers MSCI South Korea Hedged Equity Fund DBKO - Underlying MSCI Korea 25/50 US Dollar Hedged Index measures the performance of the large & mid-cap segments of the Korean market - It hedges exposure to fluctuations between the value of the U.S. dollar and the Korean won.
HKOR 0.38% exp - ?? no longer active ??
- Korea KOSPI 200 ETF is little known
- Tracks a 200 blue chip
- HAS short track record and low volume
- Toronto-based Horizons ETFs Group launched it in 2014
FLKR 0.09% expense $20m 136 stocks
- Franklin FTSE South Korea ETF
- AUM $20m only
- The ETF target large and mid-sized companies in South Korea, spreading investor exposure over many sectors including IT, consumer staples, consumer discretionary, materials, financials, and healthcare.
FKO - First Trust South Korea Alpha Dex Fund
This South Korean fund correlates with the Defined South Korea Index that uses an AlphaDEX stock selection methodology to select stocks from the S&P South Korea BMI universe that meet certain criteria. Some of these holdings include CJ Corporation, KCC Corporation, and KT Corporaton. And some of the top sectors represented are consumer discretionary and staples, energy, financials, and industrials.
- Clearly as US economy recovered post GFC, South Korea stocks REALLY boomed for next few years.