Korea to Strengthen Oversight of High-Yield ELS Products Starting September: Brokerages Required to Issue Timely Principal Loss Warnings to Investors

Odaily News: South Korean financial regulators plan to strengthen oversight of structured products such as ELS starting next month, requiring brokerages to issue warnings to investors when products approach the Knock-in trigger line for principal loss, and to reassess product design and sales when market conditions change and risks rise significantly.

It is understood that the South Korean stock market has recently experienced significant volatility, but retail investors' appetite for high-risk investments has not noticeably cooled. After regulatory tightening on single-stock leveraged ETFs, some investment has shifted toward equity-linked securities (ELS) offering high "coupon" yields. Data released by the Korea Financial Investment Association shows that ELS sales in South Korea reached 3.5 trillion KRW in July, hitting a new high since April 2023 and marking the strongest performance in over three years. ELS products based on Samsung Electronics and SK Hynix stocks have become the main growth driver.

Analysts believe that behind investors' pursuit of high yields lies optimism about the AI chip cycle and the future performance of semiconductor leaders. Although Samsung Electronics and SK Hynix stock prices have rebounded recently, they remain more than 22% below the historical highs set in June. Some investors believe that growth in HBM (High Bandwidth Memory) demand and the two companies' expanded shareholder return programs are expected to reduce the risk of further declines. (Bloomberg)