Korean ETFs Tumble On Death Of Kim Jong Il - Commodity ETFs
19 Dicembre 2011 - 12:34PM
Zacks
As if there weren’t enough geopolitical concerns in the market
today, the sudden and relatively unexpected death of North Korea’s
Kim Jong Il has added yet another issue to the global stage.
The leader of the reclusive nation had an apparent stroke or
heart attack, dying at the age of 69. He leaves behind an
impoverished nation of about 23 million people in what is described
by some as the most isolated country in the world. Despite the
rampant poverty and the lack of basis services, however, North
Korea has one of the world’s largest militaries and is one of a
handful of nations that have nuclear weapons, giving the country
outsized influence on the global stage.
North Korea’s Successor
Power now shifts to Jong Il’s third son, Kim Jong Un, who will
now take over for the nation. Little is known about the new leader
other than that he was educated in Switzerland and is believed to
be in his late 20s. Even less is known about his governing style or
approach to global politics causing many officials in South Korea
to worry (see Go Local With Emerging Market Bond ETFs). In fact,
officials in Seoul put their military forces on high alert as some
are concerned that the new leader may make a rash move in order to
consolidate power and demonstrate his control over North Korea. "We
should increase the country's military capability in every way to
reliably safeguard the Korean socialist system and the gains of
revolution" the National Funeral Committee of North Korea said
further adding to the tension.
Thanks to this uncertainty, South Korean stocks have been
selling off across the board as some of the more risk adverse
investors flee the country until more is known about how the North
will proceed in the months ahead. North Korea has always been
volatile and unpredictable and this sudden change only adds to the
fickle nature of the country (also read India ETFs: Behind The
Crash). Yet, with that being said, this could turn out to be just a
short-term issue, especially if the status quo continues on the
peninsula. As a result, for investors who believe that this could
be a small issue going forward, this may be an attractive entry
point for Korean equities. For these investors, either of the
following South Korean ETFs could make for a solid investment:
iShares MSCI South Korea Index Fund (EWY)
The most popular South Korean ETF is this very liquid ETF from
iShares. The fund has over $3 billion in assets and has been on the
market for over a decade. In terms of sector exposure, technology
takes the top spot at just over 30% while consumer discretionary
(17.4%), industrials (13.7%), financials (13.6%), and materials
(12.7%) all make up double digit allocations as well. For
individual holdings, Samsung Electronics dominates, comprising just
over 20.5% of the portfolio. EWY was down as much as 4% in the
first day of trading after the news broke, pushing the fund’s loss
for the year to 15.4% (read Forget FXI: Try These Three China ETFs
Instead).
IQ South Korea Small Cap ETF (SKOR)
For investors seeking an alternative way to play South Korean
markets, this little-known fund from IndexIQ could be the way to
go. The product tracks the IQ South Korea Small Cap Index which
seeks to give investors exposure to publically traded small caps
based and traded in Korea. Top sectors include industrials
(27.5%), consumer discretionary (19.6%), and technology (14%) while
top individual holdings go to Hotel Shilla, Korean Reinsurance, and
Medipost. Many investors believe that small caps can offer more of
a ‘pure play’ on a nation’s economy and this seems to be the case
for South Korea as the fund was down close to 6.1% on the news of
Kim Jong Il’s death. Nonetheless, the fund has been doing much
better than its large cap counterpart so far in 2011, as the
product has lost just 5.9% since the start of January (see Three
Best Gold ETFs).
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