South Korea due to be upgraded to “developed market,” Will Be dropped From EEM ETF

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April 15, 2009 8:24am ETF BASIC NEWS NYSE:EEM

southkoreaSouth Korea is due to be upgraded from “emerging market” to “developed market,” which means it will be removed from the iShares Emerging Markets ETF(EEM Quote), long a popular proxy for emerging market investing. South Korea has been one of the largest components of the fund, so its removal will make way for smaller countries and more volatility.

Investors buy foreign stocks, including emerging markets, to diversify their portfolios. For most people, this means buying a broad-based fund like the iShares Emerging Markets ETF. However, broad-based funds can be a less efficient means of diversification because they blend countries with different attributes, nullifying some of the effect.
A better solution is to invest at the country level, either with country funds or individual stocks. The pending change in iShares Emerging Markets ETF makes this a good time to reconsider how to access the space. Chile and Thailand make for an excellent compare-and-contrast. Chile is a commodity-based economy (copper), has a trade surplus, a stable government and privatized social security, which creates a constant source of demand for equities.

In contrast, Thailand has a history of instability, both in its currency (it was ground zero for the Asian contagion in 1997) and its government (there have been ten coups since 1933). Thailand is making news today due to questions about the legitimacy of Prime Minister Abhisit Vejjajiva, which has caused the currency to wobble.

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