South Korean ETFs May Rebound in 2024: Goldman Sachs

Goldman Sachs estimates that corporate earnings in the country will grow 54% next year.

After a lackluster performance over the past several years, South Korean exchange-traded funds may be set for a rebound, according to Goldman Sachs. 

The firm predicts 54% earnings growth for South Korean companies in 2024 as the semiconductor industry bounces back from 2023 earnings declines. 

The $3.75 billion iShares MSCI South Korea ETF (EWY) and the $283 million Franklin FTSE South Korea ETF (FLKR) are the largest South Korean ETFs. The country’s stock market is dominated by big technology companies. Samsung Electronics accounts for a quarter of the MSCI Korea 25/50 Index that EWY tracks. The tech sector overall makes up 37% of the index. 

South Korean ETFs have lagged those in the U.S. in recent years. The five-year annualized total return for EWY clocked in at 2.1%, compared with a 12.5% annualized return for the SPDR S&P 500 ETF Trust (SPY), a benchmark ETF for U.S. markets. The gap has been similar so far this year as SPY returned 20.3%, compared with EWY’s 12.4% return. 

Investors may be expecting a turnaround, as EWY has taken in $379 million of inflows in the second half of this year, about 10% of its total assets. 

Earnings at South Korean companies have declined 36% so this year and were relatively flat last year. Goldman is predicting that profits will increase by 54% next year and by 20% in 2025, according to its report published on Nov. 24. Based on Goldman’s estimates, Korean stocks have the lowest 2024 price-to-earnings ratio of any market in the Asian-Pacific region except for Pakistan, as well as the highest projected earnings growth.  

“Korea offers the greatest potential earnings growth in 2024 in our view, as the highly operationally levered semiconductor sector recovers from its steep profit decline,” Goldman analysts wrote. 

South Korean GDP 

Goldman estimates South Korea’s real gross domestic product will grow 2.3% next year and 2.4% in 2025, up from an expected 1.5% increase in 2023.  

“GDP growth in major economies is likely to slow, but we expect Korea’s economy will improve given expectations of a cyclical recovery in the tech sector,” a different Goldman report from Nov. 19 stated. 

Contact Gabe Alpert at [email protected].