The iShares MSCI South Korea Index Fund (EWY) jumped by nearly 1% on Monday following surprisingly strong GDP growth in the third quarter. South Korea’s economy grew 2.9% from the second quarter, the biggest jump since the first quarter of 2002. That represents a 0.6% increase from the same period a year ago, the first year-over-year growth in four quarters. Economists had been expecting growth of 2.1% over the second quarter and a decline of 0.2% from a year ago.
The positive news increases the likelihood that the Korean central bank will begin hiking interest rates in the coming quarters. South Korea joins China and Australia as Asia-Pacific countries positioned to lead the way out of the global recession. Earlier this month, Australia became the first developed nation to raise interest rates, opening the door for others to do so in coming quarters.
So while this development is obviously a positive for South Korea and the Asia Pacific region, it potentially represents another source of downward pressure on the U.S. dollar. With the Federal Reserve expected to leave interest rates near zero for the majority of 2010, interest rates in other developed countries will become increasingly attractive over the next year.
EWY was recently up about 0.8% in afternoon trading, adding to its already strong performance in 2009. The fund has gained almost 65% on the year and has more than doubled over the last 52 weeks. EWY has about 100 individual holdings, with a weight of about 19% given to Samsung Electronics. In total, nearly 30% of EWY is invested in technology companies, a major component of the South Korean economy.
EWY has nearly $3 billion in assets and an average daily volume of about 3.7 million shares.
Disclosure: No positions at time of writing.