Hong Kong linked ELF, ELT loss feared to snowball
Pedestrians walk in front of automated teller machines of Korea's major banks in Seoul in this undated file photo. Yonhap
KB to incur biggest loss from sales of Hong Kong-linked ELF
By Lee Min-hyung
Fears are mounting over the falling revenues of equity-linked funds (ELF) and equity-linked trusts (ELT) tracking Hong Kong's H-Shares Index after some of them ― sold by Korean banks ― incurred losses of around 4.03 billion won ($3.16 million).
According to data from Korea's five major lenders, they sold ELF and ELT products linked with the H index worth 13 trillion won that mature next year. But investors could suffer serious losses, as one of the lenders incurred a loss in the sales of the H index-linked ELF that reaches maturity this month. The figure is forecast to rise further in the case the index fails to bounce back significantly. The H index comes with high volatility.
The loss was attributable to the dismal performance of the index for the past two years. The H index hit 12,000 in February 2021 but continued to report a sharp decline until October 2022.
The index achieved a slight recovery to around 6,900 as of Monday but still remains at a low from its previous highs over the past decade.
The ELF was sold mostly in 2021 and most of their maturity comes next year.
According to data from the Korea Securities Depository, the outstanding balance on H index-tracking ELF reached 20.6 trillion won as of the end of June.
Industry officials said losses from the ELF may end up snowballing unless the H index gets on a path for a solid rebound by the end of 2024.
“Banks have long sold such ELFs, but the one linked with the Hong Kong index suffered a bigger loss than others due to multiple factors such as political issues there and the post-pandemic stock fall,” an industry source said. “The maturity of each ELF on the H index differs from each lender. Those sold by KB Kookmin Bank will incur the biggest losses, as the bank tops the list in terms of the sales volume of ETFs and ELTs tracking the H index.”
The outlook remains murky over whether the index will be able to regain its earlier momentum for a rally due to lingering global financial uncertainties, according to the source.