Short-term equity-linked securities (ELS) issued during the stock market boom in the first half of this year are now exposed to principal loss risks. The KOSPI, which was above 9,000 in June, has recently dropped to the 5,000 range, causing the prices of some underlying assets to fall into the knock-in zone. As maturities begin next month, investor concerns about losses are growing.
According to the Korea Securities Depository on November 15, there are a total of 94 ELS with maturities of less than one year issued in June, excluding one product that has already matured, with a total issuance amount of 180.2 billion won. This represents about 1.5% of the total issuance of approximately 12 trillion won from the top 10 securities firms in the first half of this year.
Among these, 76 products are based on domestic assets, totaling 178.6 billion won. By underlying asset, there are 48 linked to the KOSPI 200, 38 to Samsung Electronics, and 42 to SK Hynix, with some products including multiple underlying assets leading to double counting.
The maturity schedule is also approaching. In December, 12 products worth 19.7 billion won are set to mature. From January to early July next year, 64 products worth 153.9 billion won will mature.
The growing concern over principal loss is attributed to the steep decline in the stock market. The KOSPI, which reached a closing price of 9,114.55 on June 22, closed at 5,290.53 on November 13, marking a decline of about 42% from its peak.
ELS are products that pay a predetermined return if the price of the underlying asset, such as a stock index or individual stock, meets certain conditions. However, if the price of the underlying asset falls significantly, there is a risk of failing to meet early redemption conditions or falling into the knock-in condition, leading to potential principal loss.
For instance, the 'NH Investment & Securities 24866' issued on June 26 is set to mature on December 24. This product, based on SK Hynix and the KOSPI 200, offered an annual return of 27.45% but failed to meet early redemption conditions in September.
As of November 13, the stock price of SK Hynix was 1,224,000 won, down to 45.7% of the initial reference price of 2,673,000 won. The KOSPI 200 also fell to 824.78, which is 60.3% of its initial reference price of 1,366.49. The knock-in level for SK Hynix is set at 935,550 won, which is 35% of the initial reference price.
Other securities products also require caution. The 'Mirae Asset Securities 37903', set to mature on December 30, offers an annual return of around 20%. It is based on Samsung Electronics and SK Hynix, with knock-in levels set at 102,150 won and 774,000 won, respectively.
There have already been instances of falling below the knock-in level. The 'N2 ELS 321st' issued by NH Investment & Securities on June 18, worth 7 billion won, promised an annual return of 47.1% but saw the stock price of the underlying asset, SK Hynix, drop below 120,825,000 won, which is 45% of the initial reference price.
The 'Samsung Securities 31165' issued on June 25 also poses a risk of principal loss. This product, based on the KOSPI 200, offers an annual return of 15.2% and is set to mature on June 28 next year. It will be redeemed early if the KOSPI 200 does not fall below 684.81 by December 24, but if it falls below the knock-in level of 479.36, principal loss may occur depending on the redemption conditions of the product.
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.