$WATERWATER Price

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On August 23, Bloomberg reported that South Korean regulators plan to enhance oversight of structured products such as equity-linked securities (ELS) starting next month. They will require brokerages to warn investors when products approach the threshold for principal loss and to reassess product design and sales when risks significantly increase. Despite a historic sell-off in the South Korean stock market, retail investors' risk appetite has not diminished; instead, they are turning to more complex structured products in search of higher returns. ELS offering annual coupon rates of 40% to 50% have attracted significant retail capital, with sales in July reaching a three-year high, particularly for notes linked to Samsung Electronics and SK Hynix. After experiencing a wave of leveraged ETF liquidations and forced sell-offs, South Korean retail investors have not exited the market but have shifted their funds to structured products that seem to offer fixed high yields. However, these high-yield ELS often come with knock-in clauses, meaning that if the underlying stock price falls below a predetermined level, investors may face substantial principal losses. The previous leveraged ETF crisis has already inflicted heavy losses on young investors in South Korea, and the rising popularity of high-yield ELS may be replicating a similar risk structure.

On August 23, Bloomberg reported that South Korean regulators plan to enhance oversight of structured products such as equity-linked securities (ELS) starting next month. Brokers will be required to warn investors when products approach the threshold for principal loss and to reassess product design and sales when risks significantly increase. Despite a historic sell-off in the South Korean stock market, retail investors have not diminished their risk appetite; instead, they are turning to more complex structured products in search of higher returns. ELS offering annual coupon rates of 40% to 50% have attracted a large influx of retail funds, with sales in July reaching a three-year high, particularly for notes linked to Samsung Electronics and SK Hynix. After experiencing a wave of liquidations and forced closures in single-stock leveraged ETFs, retail investors have not truly exited the market but have redirected their funds towards structured products that appear to offer fixed high yields. However, these high-yield ELS often come with knock-in clauses, meaning that if the underlying stock price falls below a predetermined level, investors may face significant principal losses. The previous leveraged ETF crisis has already inflicted heavy losses on young investors in South Korea, and the rising popularity of high-yield ELS may be replicating a similar risk structure.