South Korea’s Rate Hike Surprise Versus U.K. & E.U. (EWY, KF, KEF, PKX, KEP, SKM, SKOR)

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The news was expected to be setting up for headlines such as “No rate hikes from the Bank of England nor from the European Central Bank” this morning.  South Korea changed that news flow.  The Bank of Korea decided to surprise markets with an early rate hike for 2011 due to its stance that it needs to cap inflationary pressures.  The move resembles recent actions taken out by the Bank of China as it aims to keep a lid on inflationary pressures and to keep its economy from overheating.

The Bank of Korea’s hike was only by 0.25% and some had felt that a surprise move was coming.  If it is a surprise move, then how does everyone know?  Many were expecting the move in February apparently.  The policy from the central bank is that inflationary pressures remain and it wants to get ahead of further inflationary pressure as commodity prices remain very high and as the world economies continue their recovery path in 2011.

In ETF-land there is iShares MSCI South Korea Index (NYSE: EWY), The Korea Fund Inc. (NYSE: KF), and the Korea Equity Fund Inc. (NYSE: KEF).  A much smaller play that is often very illiquid is the IQ South Korea Small Cap ETF (NYSE: SKOR),

Investors in America may watch the three active ADRs of POSCO (NYSE: PKX), the Korean steel giant; and there is also Korea Electric Power Corp. (NYSE: KEP) and SK Telecom Co. Ltd. (NYSE: SKM) is down 2.5% at $17.94.

JON C. OGG