EWY ETF

South Korea's stock market has declined recently due to economic and political risks. Weaker economic data in recent quarters has further harmed equity market sentiment. The combination of political instability and poor economic performance has created a challenging environment for investors.

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It's been a head-spinning week for ETF investors monitoring geopolitical risks to stocks in their portfolios.

South Korean stocks faced a sharp drop after president Yoon Suk Yeol moved to declare martial law on Tuesday. Yoon announced the decision in a late-night television address, dubbing the move necessary in a bid to protect the country from North Korea's communist forces.

Geopolitical tensions and a strong US Dollar contribute to bearish sentiment on the iShares MSCI South Korea ETF, despite its compelling valuation. EWY's significant exposure to Samsung Electronics and SK hynix, along with a high concentration in IT, adds to its risk profile. Technical analysis indicates bearish momentum, with key support levels identified around $55 and $47-$48, suggesting potential buying opportunities.

Korean equities have low multiples even compared to other emerging markets. The US dollar has likely peaked and will support emerging markets as it weakens further. Korea is looking to enact tax policies that specifically seek to improve shareholder returns.

The Korea-focused EWY ETF remains one of the best ways to gain exposure to chip giants Samsung and SK Hynix. Potential verification by Nvidia for Samsung's HBM3E memory will boost EWY's return. EWY stocks remains attractive value-wise at 13.4 time earnings and 1.1 times book value.

The iShares MSCI Korea ETF is a tech-heavy fund with over $5 billion in assets, making it the largest South Korea-focused ETF. EWY is heavily weighted towards tech giants like Samsung and SK Hynix, and is currently trading at attractive valuation multiples. The South Korean government's $7 billion investment in AI and semiconductors could serve as a strong tailwinds for the fund.

Between mid-January and mid-April 2024, the MSCI Emerging Markets Index saw a significant increase of over 10%, offering investors strong returns from emerging markets. This performance has sparked interest in emerging markets ETFs, which had not been as appealing to investors in recent years. The index includes 24 countries and makes up 85% of each country's market capitalization.