In June, as Korea's main stock index hovered near its all-time high, brokerages sold a wave of short-term structured products that promised generous yields on the promise that the market would hold. Those promises are now reaching their due dates, in a market that has since fallen by roughly two-fifths. Whether investors recover their principal will depend less on the sheer size of the group than on where a few chip stocks stand on the days that count.
Korean ELS Sold Near KOSPI 9000 Mature Next Month as Chip Slump Puts Principal at Risk
Sold near the peak, these products now mature in a market down 42%
Mark
Why does a 180 billion won batch matter if it's only about 1.5% of first-half issuance?
Mimi
Because of when it was sold. These were issued near the KOSPI's June 22 peak of 9114.55, so the reference prices are set at the top. The index closed at 5290.53 on the 13th.
Mark
And Samsung and SK Hynix are the common thread?
Mimi
Yes. SK Hynix is in 42 products and Samsung Electronics in 38, out of 76 domestic-underlying ones, with overlaps because some bundle both.
Luke
Worth saying the overlap means those counts can't be added up to a number of exposed products.
Mark
What's the sharpest example?
Mimi
NH 24866 matures December 24. SK Hynix closed at 1.224 million won on the 13th, with a knock-in barrier at 935,550 won.
Luke
Close, but not through. And even a knock-in isn't a locked loss. The result depends on the price on the maturity valuation date and on product terms.
Mark
So can anyone say how many investors will lose principal?
Luke
No. The reporting gives no loss estimate. It says risk varies product by product and can't be assessed uniformly.
Mimi
The N2 ELS is the one that already saw SK Hynix dip below its 45% barrier at one point.
Luke
And the effect on brokerages is described as limited, which is the market's view, not a calculated figure.
O Pulso
- The KOSPI, which closed at a record near 9,114 in June, has fallen about 42% and now sits near 5,290 under the weight of a slumping chip sector.
- Ninety-four short-term ELS worth 180.2 billion won were sold near the peak, and the first of them come due in December.
- Several products have already failed early redemption, and SK Hynix and Samsung Electronics are closing in on knock-in barriers that would expose investors to principal loss.
- Brokerages and investors are watching whether the chip slump deepens before maturity-date prices are fixed, since a knock-in alone does not decide the outcome.
In June, as Korea's main stock index hovered near its all-time high, brokerages sold a wave of short-term structured products that promised generous yields on the promise that the market would hold. Those promises are now reaching their due dates, in a market that has since fallen by roughly two-fifths. Whether investors recover their principal will depend less on the sheer size of the group than on where a few chip stocks stand on the days that count.
On June 22, the KOSPI closed at 9,114.55, the highest level in its history. In the days around that peak, Korean brokerages were selling short-term equity-linked securities that promised high yields. Now those products are coming due, and the market beneath them looks very different. By the 13th of this month the index had closed at 5,290.53, about 42% below its high.
Korea Securities Depository data show 94 ELS with maturities of one year or less were issued in June, worth a combined 180.2 billion won. Most are tied to domestic assets, and 48 use the KOSPI 200. Samsung Electronics and SK Hynix appear in many of them, so their shared exposure runs through the whole group.
The maturities begin next month, with 12 products worth 19.7 billion won due in December and 64 more worth 153.9 billion won following through early July next year. An ELS pays principal plus its yield if the underlying stays above its early-redemption threshold. If the price later drops below a knock-in barrier, principal can be lost, depending on the terms at maturity.
One December product, linked to SK Hynix and the KOSPI 200, already failed early redemption in September and sits close to its barrier. Another, tied to Samsung Electronics and SK Hynix, has barriers at 30% of reference. Later maturities are not automatically safer, and some products still have room to fall.
Market participants see limited earnings damage for brokerages, given the modest size of the maturing volume. What they are watching is whether the chip slump persists long enough to turn worries about failed redemptions into real principal losses across domestic ELS.
On June 22, the KOSPI closed at 9114.55, the highest level in its history. In the days around that peak, Korean brokerages were selling short-term equity-linked securities, or ELS, that promised high yields. Those products are now coming due, and the market they were priced against looks very different. On the 13th of this month the index closed at 5290.53, about 42% below its high.
Data from the Korea Securities Depository, reported on the 15th, shows 94 ELS with maturities of one year or less were issued in June, with a combined value of 180.2 billion won, roughly $134.9 million. That count leaves out DB Happy Plus 2282, which already matured in September. The total is a little over 1.5% of the roughly 12 trillion won, about $9.0 billion, that the top 10 issuers sold in the first half of the year.
Most of the group is tied to Korean assets. Excluding products linked to overseas assets, 76 domestic-underlying products remain, worth 178.6 billion won. Forty-eight use the KOSPI 200 as an underlying asset. Samsung Electronics appears in 38 products and SK Hynix in 42, though some products bundle several underlyings, so the per-stock counts overlap.
The maturities begin next month. Twelve products worth 19.7 billion won mature in December. Another 64, worth 153.9 billion won, follow in sequence from January through early July next year. Shares of Samsung Electronics and SK Hynix, the main underlying assets, have fallen along with the index, and more products are failing their early-redemption tests.
The mechanics matter here. An ELS pays principal plus the agreed yield if the underlying price is above the early-redemption threshold on a scheduled valuation date. If that fails and the price later drops below a preset knock-in barrier, investors can lose principal depending on the maturity terms. A knock-in alone does not fix a loss. The outcome depends on the underlying price at the maturity valuation date and on each product's terms.
The individual products show the range. NH Investment & Securities 24866, a public offering launched June 26, matures on December 24. It is linked to SK Hynix, with a reference price of 2.673 million won, and the KOSPI 200, with a reference of 1366.49. It failed early redemption in September after valuation prices fell below 85% of reference. On the 13th, SK Hynix closed at 1.224 million won, 45.7% of its reference, and the KOSPI 200 stood at 824.78, 60.3% of its reference. SK Hynix is nearing its knock-in barrier of 935,550 won, or 35% of the reference price.
Mirae Asset Securities 37903, a private placement, matures on December 30. It is linked to Samsung Electronics, referenced at 340,500 won, and SK Hynix, referenced at 2.58 million won. Its barriers sit at 30% of those levels: 102,150 won and 774,000 won. N2 ELS 321st Issue, a 7 billion won public offering from NH Investment & Securities on June 18, promised a 47.1% annual yield. Its SK Hynix reference was 2.685 million won with a knock-in barrier of 1.20825 million won, or 45%, and the shares at one point fell below that line.
Later maturities are not automatically safer. Samsung Securities 31165, a 2 billion won private placement issued June 25, is linked to the KOSPI 200 and matures June 28 next year. Early redemption requires the index at or above 684.81 on December 24. Below the knock-in barrier of 479.36, principal loss becomes possible at maturity.
Because underlyings, barriers and redemption terms differ, the loss risk across the group cannot be judged uniformly. Some products still have room to fall before hitting their barriers. Market participants see the effect on brokerage earnings as limited, since the maturing volume is small against total outstanding ELS. What they are watching is whether a continued slump in large-cap chip stocks heightens worries about failed early redemptions and principal losses across domestic ELS.
Citações Notáveis
A knock-in event does not by itself lock in a loss; the outcome depends on the maturity-date price and each product's terms.— Report on the maturing ELS
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