4 More Reasons to Like the South Korean Index ETF

On April 13th, I posted an article on the South Korean Index ETF (EWY). Despite my bullish disposition, I advocated waiting for a pullback to its March 2009 high or 50 day moving average for a better buying opportunity. However, my rationale for buying the EWY is based upon fundamentals, while technicals are used to determine entry and exit points for optimizing risk management of the trade.

Since my last article, I would like to update a few additional fundamental reasons for buying the EWY:

1. South Korean consumer confidence jumped in April to 98 vs. the previous month’s 84, as concerns over the economic downturn eased among households on positive current balance and increased assets value such as stock prices. The report was the highest reading since its central bank began compiling monthly series in July 2008.
2. South Korea’s trade surplus increased to $US6.65 billion from $US3.56 billion in February, based upon figures from the Bank of Korea. The South Korean government has added $US37bn stimulus to buffer economic shocks. Stronger demand from China is acting as a key driver for the increased trade surplus.
3. Factory output rose 6.8% in February from January.
4. During the past week, Goldman Sachs, UBS AG, Deutsche Bank and Citigroup have raised their 2009 growth estimates for South Korea.

Technically, I observed the third successful testing of the March 2009 high/support level, but unfortunately was not able to comment upon this development Wednesday due to a busy schedule. However, if you read my last report on the EWY, my recommendation for an entry point had already been provided. Wednesday marked the 3rd successful test of the March 2009 high/support level. From this point forward, I think that we can kiss this one good-bye. Should the EWY break above its April 2009 highs, it would indicate fresh buying demand and a buy signal.

In summary, I am now bullish on this ETF for both fundamental and technical reasons.

Disclosure: Hillbent.com, Inc. or its affiliates may own positions in the equities mentioned in our reports. We do not receive any compensation from any of the companies covered in our reports.

Comments

[Drew Arnold]

Good looking analysis. Korean exports are definitely being helped out by increased demand out of China, which will help Asia as a whole to lift out of this slump. On a technical level, however, I'd look for this ETF to continue to trade sideways for now along with the U.S. market. After such a quick gain in the month of March, the markets likely need a chance to consolidate and build a base. If this is the case, we'll likely see some more opportunities to get into EWY around 31, which seems like a good trade to me.

2009 Apr 30 01:50 PM