South Korea met the index provider's quality of markets criteria to join Australia, Hong Kong, Japan, New Zealand and Singapore as a developed market in the Asia Pacific region.
Despite being home to a number of world leading companies in their respective sectors – Samsung, LG Group and Hyundai to name a few - Korea is often overlooked, with emerging market giant China gaining more interest from investors in recent years.
But, with 18 months under its belt, it is high time to review how well the country has performed against other developed markets.
Financial Express data suggests there are 128 IMA UT and OEIC sector defined funds with exposure to Korea, with nine funds having exposure of 20 per cent or more.
Of these funds the Baring Korea Trust, has the largest weighting to the country (98.20 per cent). It returned 7.47 per cent in the three years to 26 February 2010 against volatility of 38.99 per cent. Over 12 months it returned 83 per cent against volatility of 34.20 per cent.
Hyung Jin Lee, manager of the Baring Korea Trust says currency and exports are behind the figures.
"The Korean currency has appreciated adding to the gains of Korean stocks in dollar or sterling terms. Global Korean brands have performed strongly as investors looked for companies benefiting and gaining market share in this environment.
"As a result, earnings for Korean corporates, especially large exporters held up much better than expected, driving stock price gains."
The best performance over a three year period came from Investec’s Asia ex Japan fund, which has a 26.70 per cent weighting to Korea. The fund returned 41.45 per cent over three years against volatility of 27.03 per cent. Over 12 months it returned 66.88 per cent against volatility of 20.49 per cent.
Over three years the fund outperformed the MSCI Asia ex Japan index by 7.36 per cent, however over 12 months the index outperformed the fund by 1.88 per cent.
Both funds performed better than the IMA UK Equity Income sector which lost 16.73 per cent over three years and gained 36.96 per cent over 12 months. Both also outperformed the FTSE All Share index which returned 7.8 per cent over three years and 44.31 per cent over 12 months.
Korea vs Japan
| Fund/Sector |
Return 3-yrs |
Volatility 3-yrs |
| Baring Korea |
7.47 | 38.99 |
| Investec Asia ex Japan |
41.45 | 27.03 |
| IMA Japan |
-13.19 | 16.46 to 26.18 |
When compared with neighbouring developed market Japan, the Baring Korea fund and Investec Asia ex Japan fund both fared well. Over three years the IMA Japan sector lost 13.19 per cent and gained 29.21 per cent over 12 months. The IMA Japanese Smaller Companies sector lost 16.24 per cent over three years and gained 36.94 per cent over 12 months.
On a risk basis, the IMA Japan sector served up volatility scores ranging between 16.46 and 26.18 per cent over a three year period and 9.83 and 26.54 per cent over a 12 month period. While the IMA Japanese Smaller Companies had volatility levels ranging between 19.68 and 28.37 per cent for three years and 13.93 and 21.50 per cent over one year.
Performance of funds vs sector over 1-yr
Source: Financial Express Analytics
Lee sees another reason Korea outperformed other developed markets: the position of the economy entering the recession.
"The Asian region (including Korea) came into this latest economic turbulence in much better shape than in the past and relative to other regions. Asian households, corporates and governments were/are in much stronger positions relative to their own history and rest of the world."