Investor losses from Hang Seng ELS products feared to double next month

Buyers of troubled equity-linked securities (ELS) tied to the performance of the Hang Seng China Enterprises Index (HSCEI) protest in front of the Financial Supervisory Service's headquarters in Yeouido, Seoul, Dec. 15, 2023. Yonhap

Losses investors stand to suffer from equity-linked securities (ELS) tied to the performance of the Hang Seng China Enterprises Index (HSCEI) will double in February from a month earlier, market watchers said Friday. The high-risk, highly-volatile index encompasses 50 shares of Chinese firms traded outside mainland China.

Korea Securities Depository data showed 1.32 trillion won ($1 billion) of the troubled equity-linked securities were issued in January of 2021, and 1.45 trillion won the following month.

As of January, 740.7 billion won remains unsettled. The figure for February was 1.38 trillion won, doubling from the previous month.

Mirae Asset Securities said Thursday that three of its financial investment products issued on Jan. 15, 2021, registered a loss rate of 52.11 percent. This is up from a loss rate of 48.62 percent on Jan. 4. It has since increased to 52.11 percent in the past week.

Similarly, Korea Investment & Securities and Samsung Securities said three of their financial investment products registered a loss of about 50 percent.

The much-criticized products were sold not only by brokerages but also commercial banks.

Korea’s top five banks – KB Kookmin, Shinhan, Hana, Woori and NongHyup – sold a combined 8.4 trillion won worth of the derivative products set to reach maturity in the first half of this year.

Most of the products sold in 2021 had a three-year maturity. The index peaked at around 12,000 points in February of 2021, but has since more than halved to about 6,000 points as of the end of November last year.

Greater losses are inevitable, as foreshadowed by the index hovering at around 5,500 points as of Jan. 12.

“Most of the products will result in a loss of at least 50 percent,” an industry official said. “The loss will become larger, unless the index picks up dramatically in the near term.”