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Summary With the exception of exports, South Korea is on track for recovery from slowed economic growth. This is reflected in the growth projection for annual GDP, retail sales, consumer spending, consumer confidence, and consumer credit. Samsung Electronics’ financial performance has been an area of concern, although valuation and conservative growth ahead slightly offset this risk; 21.52% of the fund’s assets invests into Samsung Electronics. Investing in the MSCI South Korea Capped ETF and holding for 12 months is an excellent strategy for investors to take advantage of the fund’s low valuation. Based on my investigation of South Korea’s economy, I have determined that investing in South Korea and holding for 12 months presents a strategic opportunity for investors. The iShares MSCI South Korea Capped ETF (NYSEARCA: EWY ) has had a sharp decline in price since August 2014. With the projected holistic growth ahead for South Korea, with the exception of a slight decline in exports, a rebound in the fund’s price is certainly ahead. The fund is currently trading at 51.18, a far cry from its 52-week high of 66.99 . The current valuation of the fund provides further benefits for investors, as the drop in fund price due to slowed economic growth has been sensationalized. Investors should turn their attention to the iShares MSCI South Korea Capped ETF, as its valuation is among the lowest for ETFs investing in Asia: P/E: 10 P/B: 0.97 P/S: 0.74 Further benefits of this fund include the fact the fund invests into a diverse portfolio of companies, with the top 10 holdings only accounting for 44.6% of the fund. The fund’s industry approach is also very diverse, as it invests into the following industries: Technology: 37.82% Financial Services: 14.5% Consumer Cyclical 13.54% Industrials: 11.46% Basic Materials: 8.89% Consumer Defensive 7.73% The remainder of the fund’s assets invest into the following industries: healthcare, communication services, energy, and utilities. South Korea Economic Outlook The overall outlook for Korea’s economy is very positive, and presents clear potential for investors to profit by investing now and holding until the 2nd quarter of 2016. Annual GDP growth will continue to be conservative and increase to 2.93% by the 2nd quarter of 2016. Exports will fall slightly during the next 12 months, although South Korea has the relative strength of having diverse exports and being a strong oil import country; 31% of its imports are petroleum. Consumer Spending is projected to increase by 1.5%, while growth in retail sales is projected to increase from its current level of 0.8% to 4.51%. Consumer confidence and consumer credit will also both increase by 1% and 7.4% respectively. Overall, considerable growth and recovery is ahead for South Korea, with the only concern being slowed growth in exports due to the appreciation of its currency. Investors can benefit from the drop in fund price, which has resulted from temporary slowed economic growth in South Korea. GDP growth is expected to recover, and it is clear to see that the increase in retail sales, consumer spending, consumer confidence, and consumer credit will all attribute to a recovery in the performance of the fund. Over 20% Samsung: An Ambivalent Outlook One weakness of the fund has been Samsung Electronics ( OTC:SSNLF ), which has recently had slowed growth due to its loss of its market share for smart phones in China and India . Although the outlook for South Korea is overall favorable, the fact that this company represents over 20% of the fund’s portfolio presents a threat to the fund’s performance. Past and recent performance, valuation, and future outlook for the company provide a mixed outlook. The company recently posted 2nd-quarter results for 2015 , which produced somewhat disappointing results: The company’s revenue fell by 2% quarter on quarter. The company’s operating profit fell by 15% from its level one quarter ago. The appreciation of the South Korea Won, and slowed sales of global smart phones and tablets attributed to this loss. The company’s future outlook and relative advantage in its industry make things look more favorable for the company: The company has extremely attractive valuation : its P/E is 8.75, P/S is 0.77, and P/B is 0.95. While concerns due to past performance are befitting, it is clear that the company is still undervalued, and could be a wise endeavor if coupled with recovery and growth. The following mean projections provide further insight for the future growth outlook for Samsung Electronics: Between December 2015 and 2016, sales are projected to increase by 3.3% Between December 2015 and 2016, EPS are projected to increase by 6.5% While this growth is not very substantial, and not enough to represent full recovery from past financial performance, it is clear to see that the combination of attractive valuation and moderate growth ahead will not make Samsung Electronics a threat to the portfolio’s performance. Moreover, the remaining portion of the fund’s portfolio is extremely diverse, providing diverse exposure to South Korea’s projected growth and recovery for the next 12 months. Conclusion Slowed growth and projected recovery in South Korea have both created an excellent buy opportunity. This fund has better valuation than the majority of ETFs that invest into high growth countries in Asia, such as Indonesia , the Philippines , Vietnam , and Thailand . A 12-month investment strategy is a clear ideal starting point, while a long-term hold would be more suitable for a country in Asia with higher growth; the catch is that funds with exceptionally low valuation are hard to find, unless investors are willing to consider closed-end funds . The economic stability of South Korea, growth ahead, and attractive valuation of the fund, all attribute to this being a conservative endeavor for investors. This ETF may be the best means to access South Korea’s economic growth and recovery. Investors who feel extremely confident about South Korea’s potential for recovery, may find it ideal to invest with triple the leverage, via the Direxion Daily South Korea Bull 3X ETF (NYSEARCA: KORU ). Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Scalper1 News
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