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ETF Specialist

How to Tap South Korea’s Growing Economy

The iShares MSCI South Korea Index can give investors diversification, but be careful not to end up overexposed.

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South Korea is the fourth-largest economy in Asia and, along with some of its regional neighbors, is recovering quickly from the 2008 global economic downturn. In our opinion, South Korea has some attractive growth opportunities in the near and medium term. With its strong export orientation (exports account for about 60% of GDP) and heavy weightings in cyclical industries such as information technology, industrials, financials, and materials, the South Korea market is well positioned to benefit from a global economic recovery. South Korea also has strong economic ties to China--exports to China account for about 15% of South Korea's GDP. Economic development in China will be an important driver of growth for many of South Korea's larger companies.

 IShares MSCI South Korea Index (EWY) is currently the only ETF that provides broad exposure to the South Korea equity markets. We view an investment in this fund as a satellite holding--as a point of reference, within a broad international fund (which excludes the United States), South Korea accounts for about 2% to 3% of the total portfolio. EWY tracks the MSCI South Korea Index and holds about 100 stocks. Investors should note that EWY has a slight large-cap tilt relative to the frequently cited Korea Composite Stock Price Index, or KOSPI, which includes more than 700 stocks. Through most of 2009, EWY has significantly outperformed the KOSPI.

Patricia Oey has a position in the following securities mentioned above: EWY. Find out about Morningstar’s editorial policies.