Interest in equity-linked securities (ELS) based on Korea's benchmark stock indices is rising as the KOSPI index plunged for two consecutive days amid Middle East risks triggered by Iran. However, experts advised cautious investment approaches given the potential for principal losses in these high-risk products.
According to the financial investment industry on the 4th, ELS products linked to major stock indices including Korea are gaining renewed attention as domestic market uncertainty grows. These products can preserve principal while offering around 10% annual returns (pre-tax), provided the underlying assets do not fall below the knock-in barrier from the initial reference price. They are essentially products worth considering for returns amid rapidly changing market conditions.
Securities firms are currently selling various ELS products with underlying assets including the KOSPI 200 index and benchmark indices from the United States and Japan. Samsung Securities, for example, offers a 3-year step-down ELS (a structure where early redemption conditions decrease at regular intervals) based on the KOSPI 200 index. Early redemption opportunities are given every three months, with maximum annual returns of 12% as long as the KOSPI 200 does not fall more than 50% from its initial reference price. Kiwoom Securities sells an ELS with a 40% knock-in barrier based on the KOSPI 200, Nikkei 225, and S&P 500, offering expected annual returns of 11.30% when conditions are met.
These products had been largely overlooked during the domestic market's bull run. The KOSPI index rose more than 40% this year alone, and large-cap stocks surged over 7% in a single day, reducing interest in investment products requiring commitments of three months or longer. Despite increased volatility from the Middle East situation, investors appear to believe that domestic stock indices will not fall by 40-50%.
"During a bull market, you could earn over 7% returns in a single day with individual stocks alone, so interest in long-term high-risk investment products was low," a securities firm official explained. "While the KOSPI decline may continue if the Middle East situation persists, it's worth considering that knock-in barriers are around 50% and it's too early to conclude we've entered a long-term correction phase."