The Bullish Case For iShares South Korea ETF

| About: iShares MSCI (EWY)
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Many of the reasons the iShares MSCI South Korean Index (NYSEARCA:EWY) rallied about 21% in 2012 are the same driving economic forces expected to support positive performance in 2013. A high allocation in information technology has helped this fund deliver while keeping losses to a minimum.

"Foreign investment banks (IBs) expect the South Korean economy to see its growth improve at a gradual pace next year, helped by global stimuli and the recovery of domestic demand," Shayne Heffernan wrote for Live Trading News.

According to Morgan Stanley data, the monetary stimulus taking place in the United States and China will help bolster the export activity in South Korea, which is the largest driver of economic growth. Both Goldman Sachs and Barclays Capital are predicting that the brand value from Korea's exports will fare well for competition of exports. The Central Bank has also lowered the interest rate from 3% to 2.75%, which should support more local growth.

The fourth-largest Asian economy did show growth of 1.2% in October, the first time in four months, and marks the start of a turn around expected to last into 2013. The South Korean economy is expected to expand 3.2% in 2013, reports Eric Dutram for Zacks.

The top quality brand names that are exported out of China such as Samsung have given the country an edge during the economic downturn. Samsung accounts for about one-fourth of the world's cell phones, while Kia and Hyundai are both in the top 6 of most-profitable automakers in the world, reports Dutram.

All three of the aforementioned companies have large allocations in the ETF EWY. About 22% of holdings are allocated to Samsung, while Hyundai takes 5.6% and Kia 2.8%. Also, the high representation of the information technology sector has helped the fund remain stable throughout the economic slowdown. EWY did take a hit in 2011, of -11.73%, but has re-gained ground this year and is up 21.9%.

iShares MSCI South Korean Index

Tisha Guerrero contributed to this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.