A historic stock market selloff has driven South Korean retail investors toward complex structured products, as these risk-tolerant traders continue seeking ways to boost returns. Equity-linked securities offering annualized coupons of 40% to 50% are once again attracting strong demand from ordinary investors. Sales of these products, driven by offerings tied to Samsung Electronics and SK Hynix, hit a three-year high in July. This surge comes after regulators introduced measures to curb retail enthusiasm for leveraged exchange-traded funds focused on individual stocks.

Last month, South Korea's benchmark KOSPI index plunged 22%, with leveraged funds widely seen as amplifying the market's volatility. The renewed popularity of structured notes indicates that the steepest market downturn in recent years has done little to dampen retail risk appetite, though it has shifted where investors choose to place their capital. The recent market pullback has created what many see as an attractive entry point for equity-linked securities, which pay coupons as long as the underlying stocks or indices stay within preset ranges. However, these products carry substantial downside risk if markets fall sharply.

According to Akivem Capital's Dubai-based Chief Investment Officer, Maxance Viseau: "Following market corrections or periods of high volatility, issuance volumes of equity-linked securities tend to rise as entry prices become more favorable and coupons increase. Investors seem comfortable with Samsung Electronics and SK Hynix shares trading sideways or dipping slightly, believing these stocks won't collapse. The risk, however, lies in investors mistaking quality companies for safe entry points."

Data from the Korea Financial Investment Association shows that sales of equity-linked securities (ELS) reached approximately 3.5 trillion won (equivalent to $2.5 billion) in July, the highest level since April 2023. Earlier this month, Meritz Securities issued an equity-linked security tied to Samsung Electronics and SK Hynix with an annualized yield of 43.4%. The product carries equity-level risk: according to its terms, if either underlying stock plunges 70% during the product's life and remains well below the initial price at maturity, investors will lose their principal.

Mirae Asset Securities issued an equity-linked security linked to SK Hynix and LG Electronics, offering a maximum annualized coupon of 50%. The firm disclosed that if the product fails to meet payout conditions, investor losses would range between 30% and 100%. Although Samsung Electronics and SK Hynix shares have recovered somewhat in August, both stocks remain at least 22% below their record highs from June. Thanks to surging demand for high-bandwidth memory chips used in data centers, both companies have seen improved financials and are planning record-breaking shareholder return programs, further fueling demand for equity-linked securities tied to their stocks.