EMMF - If Korea's Stock Market Follows Japan Many Emerging Markets Funds Won't Have It
2024-04-08 12:05:00 ET
Summary
- South Korea’s classification as an “emerging” or “developed” market affects funds’ allocations, with some emerging markets funds having no exposure to the country.
- The “Korea Discount” refers to the low valuations placed on South Korea’s stocks relative to stocks in other countries. Korea’s officials aim to narrow this discount through corporate governance reform.
- The Chaebol system in Korea, which consists of family-run companies with controlling stakes in conglomerates, may be reformed through the “Corporate Value-Up Program,” potentially leading to higher stock prices.
By Jeff Weniger, CFA
South Korea is a peculiar country for asset allocators because our industry is torn over the question of whether the world's 13th-largest economy is an "emerging" or "developed" market. It can be a difference-maker because some emerging markets funds may have a double-digit weight in the country while others have no allocation at all (figure 1). For example, the Vanguard Emerging Markets Stock Index Fund ( VWO ) has no exposure to Korea because its index provider, FTSE, puts the country in the developed category. The five non-WisdomTree Funds listed in figure 1 are all major ones with large asset bases.
Figure 1: South Korea Weight, Emerging Markets
WisdomTree's emerging markets investors could find themselves in an alpha generation situation if Korea's leadership pulls off a key goal this year: narrowing its stock market's so-called "Korea Discount" by following Japan's lead on corporate governance reform....
If Korea's Stock Market Follows Japan, Many Emerging Markets Funds Won't Have It