[Practical Finance] 'Inflation Fighter' Carbon Emission Permits and Agricultural Products ETF

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[Asia Economy Reporter Junho Hwang] Agricultural products and carbon emission allowance exchange-traded funds (ETFs) have recently gained attention as ‘inflation fighters’ among retail investors. The popularity stems from the ability to trade investments in products that are difficult to invest in directly, like stocks, through ETFs.

According to the Korea Exchange on the 31st, the KODEX Europe Carbon Emission Allowance Futures ICE ETF rose from 9,270 KRW on the 8th to 12,765 KRW on the 29th. Similarly, the SOL Global Carbon Emission Allowance Futures IHS, which invests in the global carbon emission allowance market including Europe, increased from 9,335 KRW to 12,770 KRW during the same period.

The rise of carbon emission allowance ETFs is attributed to the expected benefits from the increase in prices of energy resources such as international oil and natural gas. When international oil prices rise, companies seek alternatives like coal to balance costs. However, using coal requires purchasing carbon emission allowances. As demand for carbon emission allowances increases, their prices also rise, allowing carbon emission allowance ETFs to receive indirect benefits. Especially, these ETFs are the only products in the domestic market that allow investment in the global carbon emission allowance market, which seems to attract investors.

Kim Jeonghyun, Head of ETF Management Center at Shinhan Asset Management, stated, "During periods of inflation, it is important to find asset classes whose investment returns exceed the inflation rate." He added, "In the case of carbon emission allowances, thanks to the expansion of eco-friendly investments and strengthened policies, they can be seen as having the characteristics of inflation fighters."

ETFs such as TIGER Agricultural Products Futures Enhanced and KODEX 3 Major Agricultural Products Futures are also benefiting from the rising grain prices. ETFs are popular among individual investors who find it difficult to invest in commodities because they can be bought and sold like stocks. The net assets of these two products increased by approximately 4.1 billion KRW (to 34.2 billion KRW) and 4.7 billion KRW (to 14 billion KRW), respectively, compared to the end of last year. The average price per share of the TIGER Agricultural Products Futures Enhanced ETF, which has a large net asset value, was 6,814 KRW in January but surged to 8,214 KRW this month.

Since the outlook for continued grain price increases is dominant, expectations for profits from these ETFs are also high. Recently, Tymofiy Milovanov, former Minister of Economy of Ukraine, warned, "If the sowing season is not guaranteed, global supply could decrease by 5-10% in the fall." This means that if the war continues, sowing will be delayed and harvests will decrease. Russia and Ukraine account for 30% of the world’s wheat exports. Additionally, Ukraine is a major global corn exporter, accounting for 16% of the market.

This content was produced with the assistance of AI translation services.