South Korea ETF Market Forecast to Grow 67% by 2011

(Bloomberg) -- South Korea’s exchange-traded funds market is forecast to grow 67 percent by next year as the country’s bourse introduces products tracking raw materials, grains and corporate bonds, a stock exchange official said.

The value of ETF assets in South Korea, the fourth-biggest market for the products in Asia, may expand to about 10 trillion won ($8.8 billion) by 2011, according to Park Seong Rae, executive director of the Kospi market division at Korea Exchange Inc. That compares with 5.99 trillion won currently, bourse data show.

“ETFs will continue to be pretty much in the spotlight next year,” Park said in a telephone interview. “Returns by some products this year were really good. Investors’ perception toward the products has turned very positive.”

ETFs are typically designed to mimic the performance of indexes. Unlike mutual funds, whose shares are priced once daily after the end of each trading session, ETFs are listed on an exchange where shares are bought and sold throughout the day like stocks. Global ETF assets amounted to $1.24 trillion as of October, compared with $74.3 billion in 2000, according to a report by BlackRock Inc.

“As ETFs usually invest in flagship companies, they’re good for investors who believe in the nation’s growth potential,” said Park. Korea Exchange may also list overseas money managers’ ETFs, he said, without providing details.

Asia-Pacific Markets

Samsung KODEX Shipbuilding ETF, which tracks the KRX Shipbuilding Index, has advanced 74 percent this year. Samsung KODEX Samsung Group ETF, which follows the performance of an index comprised of Samsung Group companies, has gained 25 percent, according to Bloomberg data.

South Korea ranked fourth in the Asia-Pacific ETF market in terms of assets under management, trailing Japan, Hong Kong and China, according to data in BlackRock’s report. Japan had $30.5 billion in ETF assets at the end of October, compared with Hong Kong’s $26.7 billion and China’s $13.4 billion. South Korea had $4.8 billion, the report said.

A total of 64 ETFs are currently traded on the Korea Exchange, including products that track stock indexes, industry sectors, government bonds and gold futures, according to the exchange, which listed 16 new products this year.