South Korean retail investors are increasingly turning to complex structured products despite a historic market selloff that has driven the Kospi down 22% last month. According to Business Standard reports, equity-linked securities offering annualized coupons of 40% to 50% have attracted renewed interest from mom-and-pop traders, with sales rising to more than a three-year high in July. This shift comes as regulators moved to curb frenzied retail demand for single-stock leveraged exchange-traded funds, which were blamed for amplifying market swings during the benchmark Kospi's recent decline. The boom suggests that one of the biggest market routs in recent memory has done little to dampen retail appetite for risk, but just altered the products they choose to pursue.
Leveraged ETFs tied to Samsung and SK Hynix shed close to $1 billion in August after South Korea tightened measures to curb speculative demand. As reported by Bloomberg Intelligence, $601 million left SK Hynix-linked funds while $381 million exited Samsung-linked products. The reversal follows a brutal July for Korean equities, with Samsung falling 21.5% and SK Hynix dropping 35.5% over the same period. Officials called an emergency meeting after 864.5 trillion won left the market across two sessions, with lawmakers blaming single-stock leveraged ETFs for amplifying the slide. Regulators responded by raising the minimum deposit for new investors and mandating a five-day mock trading session, which cooled trading volumes sharply afterward.
About 3.5 trillion won of equity-linked securities products were sold in July, the most since April 2023, according to data from the Korea Financial Investment Association. As reported by Business Standard, Meritz Securities issued an ELS tied to Samsung and SK Hynix offering an annualized yield of 43.4%, while Kiwoom Securities issued an ELS tied to SK Hynix and LG Electronics offering annualized coupons of up to 50%. However, these products carry substantial downside risk, with investors potentially losing principal if either stock plunges 70% during the note's life and remains sharply below starting price when it matures. Maxence Visseau from Arkevium Capital notes that buyers appear comfortable with Samsung and SK Hynix moving sideways or falling moderately, believing the shares will avoid major collapse.
While shares of Samsung and SK Hynix have steadied since their August lows, with Samsung gaining 3.63% and SK Hynix up 2.19% in August, they remain down at least 22% each from their all-time highs seen in June. According to Business Standard, the two market heavyweights are preparing record shareholder returns as surging demand for their high-bandwidth memory chips needed to power data centers has strengthened their balance sheets. This strengthened financial position likely bolsters the case for ELS products linked to their shares, despite the significant price declines from recent peaks.
