"Return of the Box Range Two-Strike Stimulus"... ELS Revival Takes Flight

'Medium Risk, Medium Return' Representative Products
Issuance Plummets as Individual Direct Investments Increase

Amid Slowing Index Growth
Inflow Accelerates Seeking 4-5% Returns

21.2 Trillion Won by April
7% Increase Compared to Last Year

[Asia Economy Reporter Minji Lee] Equity-linked securities (ELS), whose issuance volume had significantly decreased due to increased direct investments by individuals, are showing signs of revival. As concerns about a sharp decline have diminished amid a slowdown in the index's upward trend, the influx of investors aiming for returns within 4-5% is accelerating.

According to the Korea Securities Depository's securities information system, SEIBRO, the total issuance volume of won- and foreign currency-denominated ELS from January to April this year was 21.2 trillion won. Considering that ELS issuance during the same period last year was 19.67 trillion won, this represents an increase of about 7%.

Last year, following the global stock market crash in March due to COVID-19, the ELS market experienced a margin call (additional collateral payment) crisis, causing issuance volume to plummet by more than 30% compared to the previous year (99.9 trillion won), dropping to 69 trillion won. Although ELS was a representative mid-risk, mid-return product, individual investors significantly increased their investments in individual stocks, leading to reduced interest in products like ELS, which tie up funds for extended periods.

This trend has recently changed. The ELS market is showing a gradual recovery to pre-COVID-19 levels as it moves out of the pandemic's influence. On a quarterly basis, issuance volume has been steadily increasing. Issuance was 5.7 trillion won in Q2 last year, 8.1 trillion won in Q3, and 10.6 trillion won in Q4, with Q1 this year reaching 15 trillion won, marking double-digit growth.

The increase in ELS issuance is closely related to major indices undergoing adjustments and forming a trading range. As it is expected that indices will find it difficult to maintain last year's pace of growth, ELS has become more attractive as an investment option. The disappearance of concerns about a sharp index drop due to real economic recovery following COVID-19 vaccinations is also interpreted as having a positive effect.

For the time being, the KOSPI is likely to fluctuate between 3,000 and 3,200 points. Looking at the KOSPI's trend in Q1, it reached a high above 3,200 points during intraday trading in January and has since been adjusting within that range. Soeun Ahn, a researcher at IBK Investment & Securities, explained, "The liquidity conditions that raised valuations after the COVID-19 crisis are unlikely to become more favorable than they are now. Interest rates are more likely to rise than fall, and the stock market has already reflected expectations of recovery, so the KOSPI is expected to show a trading range pattern."

During the prolonged trading range in 2018 and 2019, ELS attracted attention as a 'national wealth management tool.' After the index surpassed 2,500 points at the end of 2017 and then underwent a prolonged adjustment between 2,000 and 2,300 points, investors flocked to ELS, which guaranteed annual returns of 5-6%. Although issuance volume slightly decreased in Q3 2019 due to the derivative-linked fund (DLF) incident at some banks, the average annual issuance volume in 2018 and 2019 exceeded 100 trillion won.

Researcher Inji Jung of Yuanta Securities said, "The attractiveness of ELS products increases when the market is more focused on adjustments rather than strong rises in risky assets. Given that bond yields, which are risk-free assets, are also unattractive, ELS can generate relatively high profits as long as the index does not fall sharply."

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