An Adventurous Way To Play South Korea With ETFs

South Korea, Asia's fourth-largest economy, has recently been in the spotlight thanks to saber-rattling by U.S. President Donald Trump and DPRK leader Kim Jong-Un. After posturing from Trump, Kim threatened to launch missile strikes against the U.S. territory of Guam.

Though rhetoric has cooled, some traders believe the recent geopolitical controversy is creating opportunity in South Korean stocks. The MSCI Korea 25/50 Index is higher by 25.5 percent year-to-date, a performance that is inline with that of the MSCI Emerging Markets Index, of which South Korea is the second-largest country weight.

Looking For Adventure

Historically, South Korea is one of the least volatile emerging markets, explaining why it is often a favorite of foreign investors. Aggressive, risk-tolerant traders looking to ratchet up their risk profile in an effort to capture short-term gains in South Korean stocks can consider the Direxion Daily MSCI South Korea Bull 3X Shares KORU.

KORU, the only triple-leveraged South Korea exchange traded fund on the market today, attempts to deliver triple the daily returns of the aforementioned MSCI Korea 25/50 Index. That index represents about 85 percent of the South Korean equity market.

KORU illustrates the risks associated with holding leveraged ETFs for more than a day or two. As geopolitical tensions between North Korea and South Korea escalated, KORU was taken to task, as highlighted by its one-month loss of almost 13 percent.

Don't Dismiss It

Although KORU has recently sagged, traders should still keep an eye on the leveraged South Korea ETF.

“Investors have so far viewed the situation as a buying opportunity,” said Markit in a note out earlier this month. “The 157 globally-listed ETFs with South Korean exposure have experienced over $430 million of inflows so far in August. These inflows build on those experienced over the last three months, setting the asset class on track to register its largest inflow streak since the second half of 2014.” 

As for KORU, data suggest interest is rising that ETF. For the five-day period ended Aug. 16, volume in KORU spiked to 58.1 percent above the trailing 20-day average, according to Direxion data. 

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