North Korea Missile Test Hits South Korea ETFs
North Korea’s recent nuclear test has sparked jitters in the global markets. On September 9, the isolated country detonated its largest-ever nuclear bomb, having a yield of a little more than 10 kilotons (KT), almost the same size that the U.S. dropped on Hiroshima in 1945.
The timing has been immaculate as the detonation received utmost attention from the world leaders attending the G20 and ASEAN meetings in the neighbourhood. The successful test was also a sharp response to the worldwide criticism North Korea faced after it fired three ballistic missiles earlier in the week.
North Korea also declared that it is now capable of mounting a nuclear warhead on a ballistic missile. Per South Korean defence ministry, the country is fully prepared to conduct an additional nuclear test at any time in the Punggye-ri area.
Global Stock Markets on the Edge
North Korea’s growing arsenal of nuclear bombs – 20 by the end of 2016 – as estimated by Siegfried Hecker, an expert on North Korea's nuclear program, is a major concern for neighbours specially South Korea and Japan, both key allies of the U.S.
Following the detonation news, South Korea’s Kospi benchmark fell 1.3% on September 9. The South Korean won dropped to 1,102.30 as compared to the U.S. dollar – almost 0.9% decline from the previous day’s closing of 1,092.6.
Although Japan’s Nikkei Stock average ended about flat, all three major U.S. stock exchanges saw a decline. In fact, they posted the steepest weekly decline since June. The Dow Jones industrial average fell 2.13%, the S&P 500 lost 2.45% and the Nasdaq Composite dropped 2.54%.
South Korea Economy to Take a Hit
Despite being a key emerging market of Asia, South Korea continues to face a number of headwinds that are marring its growth prospects. The country’s fading industrial competitiveness, slowing corporate earnings and poor shareholder returns have weighed on the markets for quite some time now.
Early July, Bank of Korea lowered its GDP forecast slightly to 2.7% for full-year 2016. Per Bloomberg, the country’s GDP is estimated to increase 2.6%, lower than the central bank’s projection.
Meanwhile, North Korea’s military aggressiveness is sure to heighten tension between the countries, as attempts to improve dialogue are expected to die down along their heavily fortified borders.
Per Reuters, in a show of solidarity with South Korea, two U.S. B-1 bombers flew over the country on September 12. The involvement of the U.S. military will intensify the geo-political risks in the region, which does not bode well for global investors.
ETFs Plunge
Most of the South Korea focused ETFs plunged following North Korea’s nuclear test.
iShares MSCI South Korea Capped ETF (EWY) - Over the last three trading sessions, EWY declined 6.3%.
The fund tracks MSCI Korea Index and has a holding of 108 stocks. The fund’s expense ratio is 0.62% while dividend yield is 2.16%. EWY has managed to draw $3.38 billion in assets under management (AUM) till September 13, 2016.
Direxion Daily South Korea Bull 3X Shares ETF (KORU) - Over the last three trading sessions, KORU declined 18.4%.
The fund tracks MSCI Korea 25-50 Index and holds 6 stocks. The fund’s expense ratio is 0.95%, while dividend yield is 3.41%. KORU has managed to pull in $4.3 million in AUM as of September 13, 2016.
WisdomTree Korea Hedged Equity Fund (DXKW) - The fund tracks WisdomTree Korea Hedged Equity Index and has a holding of 43 stocks. The fund’s expense ratio is 0.58%, while dividend yield is 0.25%. DXKW has managed to rake in $14.9 million in AUM as of September 13, 2016.
DXKW lost 3.7% over the last three trading sessions.
Deutsche X-trackers MSCI South Korea Hedged Equity ETF (DBKO) - The fund tracks MSCI Korea 25/50 US Dollar Hedged Index and has 107 stocks. The fund’s expense ratio is 0.58%, while dividend yield is 0.44%. DBKO has managed to attract $43.7 million in AUM till September 13, 2016.
Over the last three trading sessions, DBKO declined 3.6%.
iShares Currency Hedged MSCI South Korea ETF (HEWY) - The fund tracks MSCI South Korea 25/50 100% Hedged to USD Index and comprises three stocks. The fund charges 0.62% in fees and its dividend yield is 2.25%. HEWY has managed to fetch $12.3 million in AUM till September 13, 2016.
HEWY fell 2.7% over the last three trading sessions.
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ISHARS-S KOREA (EWY): ETF Research Reports
DIR-D S KR BL3X (KORU): ETF Research Reports
DEUTS-XT MS SK (DBKO): ETF Research Reports
ISHARS-CHM S KR (HEWY): ETF Research Reports
WISDMTR-KR HE (DXKW): ETF Research Reports
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