Surge of 'Annual 10% ELS' in Volatile Market

As Volatility Rises in Major Global Stock Markets, High-Yield Products Flood In... Last Year's Returns Doubled

[Asia Economy Reporter Minji Lee] The target yields of equity-linked securities (ELS) issued based on major country indices such as the US S&P 500 and Euro Stoxx 50, as well as blue-chip stocks, are hovering around 10%. Since the beginning of this year, as volatility in major stock markets increased due to the novel coronavirus disease (COVID-19), securities firms have designed products that can generate high returns and introduced them to the market.

▲View of the Yeouido financial district in Seoul

According to NH Investment & Securities on the 12th, among the 29 ELS issued by the company this month, 9 ELS have expected yields exceeding 10%, and 18 ELS are expected to yield between 7% and less than 10%. The ELS with the lowest yield was around 5%. The ELS issued with the highest yield was 'ELS 19493', which includes Walt Disney and NVIDIA as underlying assets, offering up to 16% returns if the underlying assets do not fall more than 55%. While products with annual yields of 5-7% dominated issuance in the first half of last year, recently, products aiming for more than double the returns have appeared in the market.

The increase in ELS target yields is due to the significant declines in major stock markets used as underlying assets. When asset volatility increases, coupon yields rise, and as major stock markets recorded about a 30% drop over the past three months, it became possible to offer products with high-yield coupons.

The US S&P 500 closed at 2,237.40 on March 23, down 34% from this year's high of 3,393.52, but has since risen over 30% to 2,930.32. The Hong Kong H Index (HSCEI) and Nikkei 225 rose 16% and 23% respectively from their lows, while Euro Stoxx 50 (17%) and KOSPI 200 (26%) also showed significant gains from their lows.

In the past month, the most issued index was the S&P 500, with approximately KRW 1.3927 trillion worth of ELS issued. Considering that the total ELS issuance during this period was KRW 1.5929 trillion and many were mixed types bundling three underlying assets, it appears that most ELS include the S&P 500 index. This was followed by Euro Stoxx 50 (KRW 1.2238 trillion), Hong Kong H Index (KRW 895.6 billion), and KOSPI 200 (KRW 742.6 billion) in issuance scale.

There was also a notable release of stock-type ELS that included blue-chip stocks which had sharply declined in price to increase yields. Among the underlying assets frequently issued in the past month, Samsung Electronics was prominent domestically, while NVIDIA, Apple, and Netflix were notable overseas stocks. The yield of Samsung Securities' (ELS) 24417, which includes Samsung Electronics, was 14.64%, higher than that of index-type ELS.

As coupon yields have increased, market response has also been positive. Last month, NH Investment & Securities' 'ELS 19424' and 'ELS 19454' recorded competition rates of 1 to 6.6 and 1 to 4.5, respectively. A representative from a small to mid-sized securities firm said, "In recent years, it has been difficult for ELS issuance to exceed a 1 to 1 competition rate, but some ELS are attracting significant funds," adding, "The fact that securities firms are including lizard options and other measures to stabilize ELS products seems to have had a positive effect."

This content was produced with the assistance of AI translation services.