Korean Retail Investors Pursue High-Yield Structured Products Despite Market Rout

South Korea's stock market collapsed last month—the Kospi plunged 22%, one of the worst routs in recent memory. You might expect retail investors to pull back, to grow cautious, to sit in cash. Instead, they did something else entirely. They moved their money into equity-linked securities, complex structured products that promise annualized returns of 40% to 50%, betting on Samsung Electronics and SK Hynix to hold steady or climb. In July alone, sales of these products hit 3.5 trillion won, the highest volume in more than three years.

The timing is not accidental. Regulators had just cracked down on leveraged exchange-traded funds, which retail traders had been using aggressively and which, by most accounts, had amplified the market's downward spiral. So the regulator's hammer came down on one tool, and retail investors simply picked up another. The appetite for risk did not disappear. It migrated.

Equity-linked securities work like this: you buy a note tied to a stock or index. As long as the underlying asset stays within a preset price range, you collect your coupon—your guaranteed payment. The products are attractive precisely because they offer those high yields when volatility spikes and entry prices look cheap. Meritz Securities issued an ELS in August tied to Samsung and SK Hynix offering 43.4% annualized yield. Kiwoom Securities offered another, also tied to SK Hynix and LG Electronics, with coupons as high as 50%. Both disclosures buried the same crucial detail: if either underlying stock falls 70% and stays depressed when the note matures, investors lose their principal. Losses could reach 100% if the structure fails to trigger its payout conditions.

The danger, as one investment strategist put it, is mistaking a strong company for a safe entry price. Samsung and SK Hynix are genuine powerhouses—their balance sheets have strengthened on surging demand for high-bandwidth memory chips that power data centers. Both are preparing record shareholder returns. Yet both remain down at least 22% from their June peaks. Retail investors appear to be betting that these two giants will not collapse further, that they will move sideways or recover modestly. They are comfortable with that risk profile. They are not, however, protected against it.

This is not the first time Korean retail investors have made this bet and lost. In 2016, the Brexit shock devastated structured products. In 2020, the oil market slump did the same. From 2021 to 2024, a prolonged China stock decline hammered investors holding China-linked notes. In 2024, South Korea's financial watchdog completed a probe and found that some of the country's largest brokerages had misrepresented the risks of those China-linked products to retail clients. The pattern is clear: when volatility spikes and coupons look attractive, memory fades.

Regulators are moving to tighten the guardrails. Starting next month, the Financial Supervisory Service will require brokerages to warn ELS investors when their products approach knock-in levels—the thresholds at which the note's protective structure breaks down. Brokers will also have to review offerings if market conditions significantly increase risk. One investment officer at HSBC Private Bank emphasized the core requirement: disclosure. Investors need to understand what they stand to lose, not just what they stand to gain.

Analysts expect ELS issuance to ease as volatility declines and option premiums shrink, making those 40% to 50% coupons harder for issuers to offer. The Kospi 200 Volatility Index has fallen nearly in half from late June levels, though it remains more than double the five-year average. For now, the market for these products remains hot. Whether that heat reflects genuine conviction or the familiar pull of yield chasing in a wounded market remains an open question.