Aerospace & Defense

Korean-American ADR/ETFs React Sharply on New Military Skirmish (EWY, KF, KEF, PKX, KEP, SKM, ATK, RTN, LMT, SKOR)

War and the fear of war create uncertainty for financial markets.  If there is one place in the world that you can count on uncertainty rising from throughout the years it is North Korea and South Korea.  A new round of cross-border military engagement between troops in North Korea and South Korea has created a wave of uncertainty that pressured stocks and rallied bonds well beyond Asia.  What is interesting is that the defense (or war) stocks are not seeing a major interest so far after this new incident.

iShares MSCI South Korea Index (NYSE: EWY) aims to track the performance of publicly traded securities in the South Korean markets inside the MSCI South Korea Index. The ETF’s shares are down 5.24% at $53.61.  There are also two more fund vehicles via and ETF called The Korea Fund Inc. (NYSE: KF) and the closed-end fund called the Korea Equity Fund Inc. (NYSE: KEF).  The Korea Fund Inc. (NYSE: KF) is down 5% at $40.66 and the closed-end fund called the Korea Equity Fund Inc. (NYSE: KEF) is down 4.8% at $11.28 but both generally have very light trading volume.

There are three active and large ADRs from South Korea that we track which have NYSE share listings: POSCO (NYSE: PKX), the Korean steel giant, is down 4.8% at $96.20; Korea Electric Power Corp. (NYSE: KEP) is down 5.5% at $12.12; and SK Telecom Co. Ltd. (NYSE: SKM) is down 2.5% at $17.94.

We are not going to make a gunslinger’s prediction from half way around the world over how this latest round of military action will play out, even if there are reports of civilian death.  What we would note is that if the military conflict was expected to rapidly escalate into something far worse you might expect to see a rally taking place in the defense stocks.  So what if the defense or war stocks are not moving?  Alliant Techsystems Inc. (NYSE: ATK), the largest bullet maker, is down 0.1% at $73.53 on light trading.  Raytheon Co. (NYSE: RTN), the maker of patriot missiles, is down 0.2% at $46.43.  Lockheed Martin Corporation (NYSE: LMT) makes fighter jets, missiles, combat systems, and many more tools for fighting war and tracking enemies; its shares are down 0.1% at $68.57.

A much smaller play that is often very illiquid is the IQ South Korea Small Cap ETF (NYSE: SKOR) and its shares are down 6.1% at $26.90 on very very thin trading volume.

JON C. OGG

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