Invest1 publisher2 min readPublished
Seoul curbed leveraged ETFs. Retail bought 3.5 trillion won of chip-linked ELS instead.
July was the biggest month for Korean equity-linked securities since April 2023, and the 40% to 50% coupons sit on Samsung and SK hynix, the same names the ETF curbs were meant to cool.
The Investor · Invest desk
What happened
- Korean retail investors bought about 3.5 trillion won of equity-linked securities in July, the heaviest month since April 2023, per Bloomberg citing the Korea Financial Investment Association.
- Sales were led by products using Samsung Electronics and SK hynix as underlying assets, carrying annual coupons of 40% to 50%.
- The inflows followed regulatory measures curbing retail access to single-stock leveraged ETFs.
- Those leveraged ETFs were blamed for amplifying volatility last month, when the KOSPI fell 22%.
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Why it matters
- exposure Households have moved from amplified daily moves to selling the tail on two memory names, where the weaker underlying decides the outcome and the disclosed downside runs to the entire principal.
- constraint Removing one leveraged product narrowed the retail menu without lowering the appetite, so each further ban routes the same demand into whatever the brokerages can still print.
- precedent At July's rate, a principal pool the size of the 2024 Hong Kong H-index loss book rebuilds in roughly three months, this time on domestic chip names rather than Chinese indices.
Start with the paper itself. Meritz Securities is offering 43.4% a year on Samsung Electronics and SK hynix, with principal lost if either name falls 70% during the term and then closes well below its reference price at maturity [5]. Both stocks remain more than 22% below the records they set in June [9], so a reference struck near current levels puts that trigger roughly 77% below the June peak [1]. Distance like that is what makes a 43.4% coupon printable, and it is also what makes the product read as a yield instrument rather than as a sold option.
The load-bearing word in the terms is "either" [5]. A basket of two memory names does not halve the risk; it gives the position two ways to break, and both underlyings are geared to the same high-bandwidth memory demand that is funding the issuers' largest-ever shareholder returns [10]. Kiwoom's version pairs SK hynix with LG Electronics and tells buyers that missing the payment conditions means a loss of 30% to 100% [6]. Upside capped at the coupon, downside open to the whole principal.
What the Financial Supervisory Service adds next month is a notification when a product nears its knock-in level, plus a duty to review products when market conditions sharply raise risk [13]. Both are answers to the 2024 Hong Kong H-index episode, where the FSS found some large brokerages had failed to properly disclose the risks of China-linked structured products [12]. They are decent answers to that particular finding. But accounts with confirmed losses on those products held 10.4 trillion won of principal and lost 4.6 trillion won [11], about 44 won in every 100 [2]. The damage was severity, not surprise, and a message sent near the barrier does not change severity.
Nothing in the new regime touches coupon level or barrier depth, and nothing addresses how much of a month's issuance points at the same two tickers [13][2]. The bull case for the underlyings is real and beside the point: improving finances and record payouts are earnings events [10], while the ELS only asks whether the weaker of two correlated stocks stays above a line. Maxence Vissault, chief investment officer at Arkévium Capital, described the mechanism as issuance rising after a correction or volatility shock, when entry prices look attractive and coupons climb, with the risk being confusion between good companies and safe entry prices [8]. Analysts telling Korean clients the sell-off has created a favourable entry point for ELS are supplying the first half of that sentence [7].
What to watch
- Whether the FSS rules taking effect next month reach issuance terms such as coupon caps, barrier depth or single-sector concentration, or stop at notification and review.
- Monthly KOFIA issuance data for August and September: whether the 3.5 trillion won pace holds once the post-correction entry-price argument fades.
- Any move by Samsung Electronics or SK hynix back toward their June highs, which would push new references higher and set barriers at levels struck near a peak.