FLKR: A Strategic Hold Amid South Korea's Emerging Market Outperformance

In the ever-evolving landscape of global equities, investors seeking long-term value often turn to emerging markets, where undervalued assets and macroeconomic tailwinds can create compelling opportunities. South Korea, a cornerstone of the Asia-Pacific region, has emerged as a standout performer in 2025, with its equity market trading at historically attractive valuations. For investors like those holding the Franklin FTSE South Korea ETF (FLKR), the question is not whether to exit but whether to deepen exposure. This article argues that FLKR remains a strategic hold, supported by South Korea's valuation correction, resilient corporate earnings, and its position as a leader in the global technology and AI-driven economy.

South Korea's Attractive Valuation: A Magnet for Long-Term Investors

As of January 1, 2025, South Korea's trailing Price-to-Earnings (P/E) ratio stands at 11.49, with a forward P/E of 7.85, according to Siblis Research. These figures place the KOSPI index among the most affordable emerging markets, significantly below the MSCI Emerging Markets Index's trailing P/E of 15.13 and forward P/E of 11.87, according to Siblis Research. The discount is not merely a function of economic weakness but a reflection of structural undervaluation. Goldman Sachs Research highlights that 70% of South Korean stocks trade below book value, suggesting ample room for re-rating if corporate governance reforms and market dynamics improve, according to Goldman Sachs.

This valuation gap is particularly striking when compared to peers like India and Taiwan, which trade at higher multiples despite facing macroeconomic headwinds such as inflationary pressures and geopolitical risks, according to Siblis Research. South Korea's affordability is further amplified by its robust corporate earnings. Despite challenges in sectors like renewable energy-exemplified by Qcells' production disruptions due to U.S. customs enforcement-the broader market has demonstrated resilience. South Korean firms, known for their innovation and operational efficiency, are well-positioned to capitalize on global demand for semiconductors, EVs, and AI infrastructure.

FLKR's Role in Capturing South Korea's Growth

The Franklin FTSE South Korea ETF (FLKR) offers investors direct exposure to the country's large- and mid-cap equities, with at least 80% of assets allocated to the FTSE South Korea Capped Index, according to Franklin ETF. This index includes industry leaders like Samsung Electronics, SK Hynix, and Hyundai Motor, which are pivotal to South Korea's technological and industrial ecosystem. FLKR's performance in 2025 has been nothing short of impressive, with an 80% year-to-date rally driven by the KOSPI's rebound and global capital inflows, according to StockAnalysis.

While specific expense ratios for Q3 2025 are not disclosed in the available data, FLKR's low-cost structure aligns with its role as a vehicle for long-term investors seeking broad market exposure. The ETF's focus on large-cap stocks, which dominate South Korea's export-driven economy, positions it to benefit from global trends such as the U.S. interest rate cuts and the dollar's weakening trend, according to Goldman Sachs. These factors are expected to enhance the appeal of South Korean equities, which are priced in a relatively weak local currency.

Navigating Challenges: Resilience in the Face of Supply Chain Headwinds

South Korea's economic narrative is not without its challenges. The renewable energy sector, for instance, has faced turbulence as U.S. customs enforcement under the Uyghur Forced Labor Prevention Act disrupted supply chains for firms like Qcells, according to Siblis Research. However, these challenges underscore the country's adaptability. Qcells' decision to invest $2.3 billion in a U.S. manufacturing plant to reduce reliance on imports highlights the long-term strategic thinking of South Korean firms, according to Siblis Research. Such moves not only mitigate risks but also align with global decarbonization goals, ensuring sustained demand for the sector.

Moreover, South Korea's reputation for resilience extends beyond its corporate sector. Indonesian President Prabowo Subianto recently praised the nation's ability to rebuild its economy from post-war conditions, a testament to its enduring work ethic and innovation-driven culture, according to Tempo News. This historical resilience provides a buffer against short-term volatility, reinforcing the case for a strategic hold in FLKR.

Strategic Hold Rationale: Valuation Correction and Global Thematic Alignment

The case for FLKR as a strategic hold rests on two pillars: valuation correction and thematic alignment with global megatrends. South Korea's current P/E ratios suggest that the market is pricing in pessimism rather than potential. As corporate governance reforms take root and earnings growth accelerates-driven by AI adoption and semiconductor demand-valuation multiples are likely to expand.

Thematic alignment is equally compelling. South Korea is a global leader in semiconductors, a sector central to the AI revolution. Companies like SK Hynix and Samsung are at the forefront of developing advanced memory chips and AI accelerators, positioning them to benefit from the sector's multi-year growth trajectory, according to Goldman Sachs. Additionally, the country's EV and battery manufacturing ecosystem, led by firms like LG Energy Solution and Samsung SDI, is gaining traction in North America and Europe, further diversifying revenue streams.

Conclusion: A Strategic Hold for the Long-Term Investor

In conclusion, FLKR represents a compelling strategic hold for investors with a long-term horizon. South Korea's undervalued equities, resilient corporate sector, and alignment with global technology trends create a favorable risk-reward profile. While short-term challenges like supply chain disruptions persist, they are being addressed through proactive investments and policy adjustments. For those seeking to capitalize on emerging market outperformance, FLKR offers a cost-effective, diversified pathway to South Korea's growth story.