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Korea ETF Navigates Political Storm

Stocks in this article: EWY EFA AAXJ

NEW YORK ( TheStreet) -- Political tensions in South Korea have hampered the rise in the iShares MSCI Korea Index (EWY), but the fund continues to relatively outperform other country ETFs. For investors bullish on the country and its economy, it may be a good time to gain exposure.

Some weeks ago on my Real Money blog on my RealMoney blog, I said EWY would continue to trade sideways as long as uncertainties continue in the aftermath of the tragic sinking of a navy patrol boat.

At that time, there was speculation over how the ship sank, but now the ship is believed to have been sunk by a torpedo launched by North Korea and South Korean President Lee Myung-bak said there will be retaliatory action.

This is an outcome few want to see since an escalation of the war would be disastrous for South Korea's economy. Even a successful campaign against North Korea would be extremely costly from an economic standpoint, due to the cost of reunifying the two countries.

EWY has traded sideways since the incident, despite optimistic reports concerning the present state of the country's economy.

For instance, the two largest Korean automakers have been doing well lately. April vehicle sales for Hyundai Motors increased by 28% in April from a year earlier on the strength of overseas sales as the company exported about five times as many cars as it sold domestically.

Kia Motors also had a good April. Its sales increased 49% last month compared to a year earlier with much of their sales growth attributed to better sales abroad. The company shipped about three times as many cars overseas as it sold domestically.

The domestic consumer base is also showing signs of improvement, as domestic auto sales increased in April by about 33% from a year earlier for Kia and 17% for Hyundai.

Earnings for Samsung in the first quarter were also very strong. The company beat estimates when it reported a $3.95 billion operating profit in the first quarter. The company, which accounts for 18.7% of EWY, is expecting to be able to issue another strong report for quarter two.

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