Korean ETFs Soar On Election

 | May 09, 2017 01:21PM ET

Lately, elections have resulted in substantial stock market rallies in many countries, first here in the U.S. beginning last November with Trump, then followed by France’s election of Macron, to today’s pop in the South Korean equity market on Moon Jae-in’s victory.

We see the largest South Korea linked fund EWY, Expense Ratio 0.64%, $3.2 billion in AUM) trading at multi-year highs today on reasonably heavy trading volume yesterday ahead of the election. Other funds in the space which are substantially smaller than EWY that target Korea include the $27 million DBKO, Expense Ratio 0.58%), the $9 million KOR (AdvisorShares KIM Korea Equity, Expense Ratio 0.99%), the $4.6 million FKO, Expense Ratio 0.80%), and the $1.3 million HEWY, (Expense Ratio 0.64%).

Additionally, there is a levered Bull product in the space (but not a “Bear” one currently) known as KORU, (Expense Ratio 1.31%, $5.8 million in AUM). It would not be surprising to see upticks in activity in any of the aforementioned names on this post-election rally in the country’s equity market.

Of course there is an enormous amount of border tension that exists involving South Korea and North Korea, with the United States under a Trump administration increasingly appearing in daily headlines and rhetoric in tandem with this. Thus far however, such tensions clearly have not affected the South Korean equity market, given its blast-off rally here after a small pullback in late March until mid-April.

As we have mentioned in the past, in many ways South Korea is Samsung (KS:005930), and Samsung is South Korea, as the company makes up more than 24% of the market capitalization of the entire South Korean market, and as a result the number one holding in the fund of one hundred eleven names in the portfolio. The next largest company in the index weighs in at only 6.65% (Lotte Confectionery (KS:004990)) and is followed by SK Hynix (KS:000660) (4.33%), Hyundai Motor (DE:05380) (3.11%), and Naver Corp. (3.06%).

As one might expect due to the Samsung (LON:0593q) overweight, Technology dominates the sector allocations within EWY (36%), followed by Consumer Staples (14%), Financials (14%), Consumer Discretionary (12%), and lesser weightings to other industries.