ETF Talk: Asian Fund ‘Chips’ Its Way toward Further Gains

With many markets around the world still on the rise, one area to watch is the exchange-traded fund (ETF) that features a strongly performing anchor stock. The iShares MSCI South Korea Index Fund (EWY) tracks the performance of the high-flying South Korean stock market. Indeed, the market recently has been hitting highs for the year and its outlook should only be strengthened by South Korean electronics behemoth Samsung providing guidance yesterday that it anticipates a seven-fold jump in first-quarter operating profits. The stock comprised roughly 18% of the fund’s holdings at the end of February.

Samsung announced that it expects its first quarter operating profit to reach 4.3 trillion won, up from 590 billion won for the same time a year ago, due largely to rising prices for computer chips. Samsung is the world’s largest manufacturer of computer chips and flat-panel screens, as well as the second-largest producer of cell phones. Samsung’s momentum likely will continue for the next two quarters, one industry analyst predicted.

I am not convinced that the current bullish market conditions will last that long, but it is clear that the biggest holding in EWY looks to have a brisk tailwind in the form of rising computer chip prices to propel it forward during the next quarter. The Samsung announcement certainly caught my attention, since the company’s semiconductor business that builds its computer chips actually lost money during the first quarter last year.

With a population of around 49 million — about the size of Italy — South Korea is an electronics and information technology leader. South Korean companies such as Samsung are known for cutting-edge technology, trendy mobile phones and flat-screen TVs. The country now ranks as the world’s 10th-largest economy, and its per capita annual income grew from US$87 in 1962 to US$24,800 today.

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