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July 08, 2011 at 07:46 AM
In the wake of Wednesday’s news that Pyeongchang, South Korea has been awarded the 2018 Winter Olympics, IndexIQ, which develops index-based liquid alternative investments, on Thursday presented reasons for investors to watch several sectors for potential growth in the South Korean economy.
According to a New York Times report, this is the first time that South Korea will host the winter games, and it won overwhelmingly on the first ballot after 10 years of trying. The country’s pitch, to expand winter sports access within the burgeoning Asian market, was a winner.
Its budget for 2018, too, was considerably larger than the bids of Munich, Germany, and Annecy, France—$1.5 billion for the games themselves, and another $2 to $6 billion for infrastructure projects. Pyeongchang’s intent is to become a regional winter sports hub.
In IndexIQ’s view, several of the sectors represented in its IQ South Korea Small Cap ETF (SKOR) appear poised to benefit from this news, including:
- industrials (33.47% of the fund)
- Consumer discretionary (15.97%)
- Technology (14.58%)
- Materials (13.27%).
According to IndexIQ, small-cap businesses in South Korea should benefit disproportionately from the increased demand in with tourism, trade, travel, hospitality, and the infrastructure projects that will be undertaken. The company has prepared a detailed fact sheet on SKOR, which can be found on its website.
Adam Patti (left), IndexIQ’s CEO, said that for investors the major benefit of South Korean investment as the country gears up for the winter games is not through large caps, which generally are multinational companies making most of their money outside the country. Instead, he says, small caps will be the ones to provide financing, construction, and other growth.
“If you buy a large-cap ETF, such as the iShares product, you’re buying large-cap multinationals that get all their revenue outside of South Korea,” he says. “For example, Samsung gets 50% of its revenue from the U.S. and 50% from China. Small caps are closer to the consumer, and smaller companies are the engine of the home economy and the ones that will be benefiting from increased domestic expenditures and increased tourism for these games.”
