From K-Pop and K-Beauty to K-Stocks... U.S. Korea ETFs Deliver 300% Returns

Korea 3X Leveraged ETF Ranks No. 1 in Three-Month Returns
1.7 Billion Dollars Flow into Largest U.S.-Listed Korea ETF in One Month
Some Seohak Ants Invest in Korea via U.S.-Listed Products

As the KOSPI index has surged past 5,900, Korean-related exchange-traded funds (ETFs) listed in the United States are also delivering high returns and attracting strong capital inflows.

According to Koscom ETF Check on the 25th, as of the close of trading on the 23rd, the three-month return of "Direxion Daily MSCI South Korea Bull 3X Shares (KORU)" stood at 297.73%, ranking first among U.S. equity ETFs. This ETF offers three-times leveraged exposure to the "MSCI Korea 25/50 Index" calculated by MSCI. It is designed to track three times the daily return of large-cap and mid-cap stocks on the KOSPI market. Over the past month, 49.9 million dollars has flowed in, drawing the attention of major Western investors.

"Ishares Msci South Korea ETF (EWY)," the largest Korea-tracking ETF, also ranked near the top with a three-month return of 63.91%. It attracted as much as 1.688 billion dollars in new capital over the past month. Among ETFs listed in the U.S. market, this product has the highest allocation to Samsung Electronics at 28.36%. "Franklin FTSE South Korea ETF (FLKR)," which has the highest allocation to SK Hynix at 19.68%, is also showing strong performance. Its three-month return is 57.82%, placing it 41st out of 3,270 U.S. equity ETFs. It drew in 87.4 million dollars over the past month.

Buoyed by the high returns, so-called "Seohak Ants" (Korean retail investors trading overseas) are also investing in Korea via U.S.-listed ETFs. According to the Korea Securities Depository’s securities information portal "SEIBro," between the 17th and 23rd, the third most net-bought overseas product by domestic investors was "Ishares Msci South Korea ETF (EWY)." They recorded net purchases of 29.912709 million dollars over the week. Domestic investors also bought 16.961022 million dollars of Direxion Daily MSCI South Korea Bull 3X Shares (KORU). In particular, because triple-leveraged ETFs do not exist in Korea, domestic investors can only access such exposure through U.S. products.

The strong inflows are being interpreted as reflecting investment demand generated by Korea’s stock market rally, which is leading major countries in terms of gains. As of the 20th this year, the KOSPI’s year-to-date return was 37.83%, outpacing the U.S. Dow Jones Industrial Average (3.25%) and Nasdaq (-1.53%). Among Asian markets, it is also far ahead of Japan’s Nikkei index (12.88%) and China’s Hang Seng China Enterprises Index (0.51%). According to Hanwha Investment & Securities, domestic capital inflows using U.S.-listed ETFs reached 1.1649 trillion won last week.

On expectations that the Korean stock market still has further upside potential, ETF inflows are expected to continue. Han Ji-young, a researcher at Kiwoom Securities, said, "The fact that since the beginning of the year Korea (18 billion dollars) has attracted the second-largest amount of ETF inflows globally after the United States (192 billion dollars) shows foreign investors’ preference for the Korean stock market," adding, "If we take into account the room for further upward revisions to earnings consensus, attractive valuations, and at least neutral foreign investor flows, the factors supporting further index gains have not been fully exhausted yet."