Emerging markets are coming off a strong performance in 2017 and South Korean stocks are reaching new highs despite political turmoil.
Canadian investors have an opportunity to tap into these rising international markets with less risk by means of two low-fee ETFs.
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ISHARES MSCI EMERGING MARKETS INDEX FUND (New York symbol EEM; buy or sell through brokers) aims to track the MSCI Emerging Markets Index.
The fund’s geographic breakdown includes China, 30.7%; South Korea, 15.7%; Taiwan, 11.5%; India, 8.4%; Brazil, 6.9%; South Africa, 6.6%; Russia, 3.3%; Mexico, 3.0%; Thailand, 2.2%; Indonesia, 2.2%; Malaysia, 2.2%; and Poland, 1.3%.
Its top holdings are Tencent Holdings (China: Internet), 5.8%; Samsung Electronics (South Korea ), 4.7%; Alibaba Group (China: e-commerce), 4.0 %; Taiwan Semiconductor (computer chips), 3.7%; Naspers (South Africa: media and Internet ), 2.3%; China Construction Bank, 1.4%; Baidu (China: Internet ), 1.3%; China Mobile, 1.2%; Industrial & Commercial Bank of China, 1.1%; and Ping An Insurance Group (China), 1.0%.
iShares launched the ETF on April 7, 2003. Its expense ratio is 0.68%.
Emerging markets are still more volatile and vulnerable to economic downturns than developed nations. But this fund’s broad diversification across many countries tones down that risk.
Recommendation in Canadian Wealth Advisor: iShares MSCI Emerging Markets Index Fund is a buy for aggressive investors.
ETFs: South Korean stocks at all-time high despite North Korean provocations
ISHARES MSCI SOUTH KOREA INDEX FUND (New York symbol EWY; buy or sell through brokers) aims to track the MSCI Korea Index.
The ETF’s top holding is Samsung Electronics at 24.4%. That’s high, but Samsung continues to report strong earnings from its Galaxy phones and computer chips. The fund’s other top holdings are SK Hynix Semiconductor at 5.7%; Hyundai Motor, 2.8%; Posco (steel), 2.7%; KB Financial Group, 2.6%; Naver (Internet), 2.6%; Shinhan Financial, 2.3%; LG Chemical (petrochemicals), 2.3%; Celltrion (pharmaceuticals) and Hyundai Mobis (auto parts), 2.1%.
The iShares MSCI South Korea Index Fund was launched on May 9, 2000. Its expense ratio is 0.60%.
South Korea has now emerged from the period of political turmoil that saw former President Park Guen-hye removed from office. She faces a number of criminal charges.
The country subsequently elected a new president, Moon Jae-in. He is the first Liberal leader in nine years.
Economically, Moon is focused on stimulating domestic consumer demand in order to supplement strong export growth. Exports are forecast to surge 10.2% this year, on improving global demand. However, domestic consumption is forecast to rise just 2.3%, due to slowing job growth and record levels of household debt.
In response, the government is undertaking new spending measures. They include increasing unemployment benefits and subsidizing maternity leave. In addition, it will raise taxes on large corporations and high-income earners. This is aimed at creating more public-sector jobs to reduce the power of the country’s giant “chaebol” conglomerates.
Meanwhile, South Korean stocks remain close to all-time highs despite provocative North Korean missile and nuclear bomb tests. That performance reflects the general belief that war, or even attack, remains unlikely.
Recommendation in Canadian Wealth Advisor: MSCI South Korea Index Fund is a buy for safety-conscious investors who can accept that risk.
1. I notice that most ETFs lend their shares, with the risk that is associated. What is your position with respect to this?
2. In another missive, you have recommended XEC (expenses: .26 %; yet I note that XEC is based on IEMG which has expenses of .14%. Why did you not recommend IEMG?
Thanks for your question. We’ll take a look at your two inquiries in an upcoming issue of our Best ETFs for Canadian Investors newsletter. TSI Research.
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1. I notice that most ETFs lend their shares, with the risk that is associated. What is your position with respect to this?
2. In another missive, you have recommended XEC (expenses: .26 %; yet I note that XEC is based on IEMG which has expenses of .14%. Why did you not recommend IEMG?
Thanks for your question. We’ll take a look at your two inquiries in an upcoming issue of our Best ETFs for Canadian Investors newsletter. TSI Research.