In late April 2011, the stock exchange of South Korea reached a record high, obviously strongly supported by heavy inflows from ETFs, or exchange traded funds, reported by industry experts. Other strategists have however expressed the opinion that as market direction of Korea is largely export oriented; it would certainly be very vulnerable to a sudden change or possible slowdown of growth in the global economy.
According to BlackRock, the inflow in ETFs by investors that can directly be linked to the stock market in South Korea reached around $911.3 million during first quarter trading of this year, which is well above the average as compared to the $1.6 billion achieved in the entire year of 2010. A major portion of the cash invested has been routed to the iShares MSCI South Korea ETF that in turn has gathered a sum of around $609 million from January to the end of April this year, which has conveniently assisted in pushing its total asset value to over $5.4 billion.
But the local Korea ETF managers, particularly those belonging to Samsung, have equally been attracting significant inflows. The Samsung Kodex 200, which incidentally happens to be the first Korea ETF that was listed in October 2002 in Seoul. It collected a grand sum of $213 million during the first quarter of this year, which takes its total asset value to about $2.2 billion.
In the mean time, the Samsung Kodex Leverage ETF, that permits investors to readily double up the bets for gains which they have placed on the equity market of Korea, attracted around $187.8 million during the first quarter of the year, which takes its asset value to about $374.8 million.
Inflows into the equity ETFs of Korea stand in a considerable contrast to most country-specific ETFs of most other countries in Asia-Pacific. Inflows into ETFs linked to the Indonesian market in the first quarter of the year were considerably lower compared to the last year, whereas on the other hand, Thailand- and Malaysia-linked ETFs only saw some net outflows in the first quarter of the current year.
According to the opinion of EPFR Global, a data specialist, this strength of positive inflows into the Korean ETFs clearly reflects much broader flows of funds in this year. Comparatively, so far inflows into nearly all equity funds of Korea have risen by nearly a fifth this year, which clearly outpaces growth by most countries of the region, including major players such as China as well as India.
Garry Evans, who is a strategist at the HSBC, however recommends that investors should take all the risks off from the Korean table for the short-term. He further cuts his recommendation for the country from the position of ‘overweight’ to that of ‘underweight’. He is rather more concerned about ant possible impact that high prices of crude oil may have since Korea is among some of the countries which are highly oil intensive. One of his major concerns is also inflation, as he believes Bank of Korea may be forced to raise interest rates.