South Korean Investors Surge Into High-Risk Equity-Linked Securities
South Korean retail investors are purchasing record amounts of complex equity-linked securities following a major stock market selloff, prompting new regulatory oversight.
Retail investors in South Korea are increasingly purchasing complex equity-linked securities (ELS) following a historic stock selloff that saw the benchmark Kospi plunge 22% last month. Sales of these structured products reached a three-year high in July, totaling approximately 3.5 trillion won ($2.5 billion).
Investors have shown particular interest in notes tied to Samsung Electronics Co. and SK Hynix Inc. Brokerages such as Meritz Securities Co. and Kiwoom Securities Co. have issued offerings with annualized coupons between 40% and 50%. While these yields are high, the products carry significant risks of principal loss if the underlying stocks plunge.
In response to this surge in risk-taking, the Financial Supervisory Service will implement tighter oversight next month. The regulator will require brokerages to warn investors when products approach knock-in levels and mandate reviews of offerings when market conditions increase investor risk.
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