South Korean retail investors pivot to high-yield ELS amid market volatility

Following significant volatility in the South Korean stock market, retail investors are shifting their risk appetite from leveraged ETFs toward complex Equity-Linked Securities (ELS). In July, ELS sales reached approximately 3.5 trillion won, the highest level since April 2023. These products, which offer high annual yields—sometimes between 40% and 50%—are increasingly linked to major semiconductor and technology firms such as Samsung Electronics and SK Hynix.

While these high yields are attractive, they carry substantial risk. For instance, products from Meritz Securities and Kiwoom Securities offer high returns but include clauses where investors could face principal losses of 30% to 100% if the underlying stocks experience severe price drops. Analysts note that ELS issuance often increases during market corrections because lower entry prices allow for higher potential coupons.

In addition to the shift toward ELS, market observers note that while the KOSPI index experienced sharp corrections, the long-term bullish outlook for certain sectors remains. Investors are also navigating discrepancies between local Korean shares and their American Depositary Receipts (ADRs), with some preferring direct local stock purchases to avoid high premiums seen in ADRs for companies like SK Hynix.