A sharp slide in South Korean equities has not materially reduced retail investors’ appetite for risk. Instead, it has pushed many toward more complex structured products, with equity-linked securities, or ELS, regaining popularity among individual buyers. Products tied to Samsung Electronics and SK Hynix led the rebound, and ELS sales in July climbed to their highest level in more than three years. The products on offer carried annualized coupons as high as 40% to 50%, reflecting continued demand for elevated returns even after a major market drawdown. At the same time, regulators are moving to curb heavy retail demand for single-stock leveraged exchange-traded funds. Those instruments were seen as amplifying volatility during the Korea Composite Stock Price Index’s 22% drop last month. The shift suggests one of the biggest market selloffs in recent memory has changed the type of products retail traders are chasing, rather than weakening their willingness to take risk. The recent correction has also made ELS look more attractive to some buyers, though the products can face steep downside if the linked stocks or indexes fall sharply outside preset ranges.
South Korea’s stock market slump has not meaningfully cooled retail risk appetite. Instead, individual investors have been moving into more complex structured products in search of higher returns.
Equity-linked securities, or ELS, offering annualized coupons as high as 40% to 50% have regained favor with retail investors. In July, ELS sales rose to their highest level in more than three years, led mainly by products tied to Samsung Electronics and SK Hynix.
At the same time, regulators are taking steps to curb intense retail demand for single-stock leveraged exchange-traded funds. Those products were viewed as having amplified market volatility during the Korea Composite Stock Price Index’s 22% drop last month.
The shift shows that one of the biggest market selloffs in recent memory has done little to weaken retail investors’ appetite for risk. What has changed is the type of product they are chasing.
The recent market pullback appears to have created a more appealing entry point for ELS. These products can pay coupons as long as the linked stocks or indexes stay within preset ranges. If the market falls sharply, though, they can also carry substantial downside risk.
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