Losses in equity-linked securities (ELS) linked to Hong Kong‘s Hang Seng China Enterprises Index (HSCEI) topped 1 trillion won ($748 million), according to the latest analysis. This analysis, released by the Maeil Business Newspaper, investigated the losses of the ELS products sold by the country’s top six commercial banks, including KB Kookmin Bank and Shinhan Bank. Almost 5000 investor complaints regarding ELS have also been lodged against the banks.

According to the analysis, the losses escalated to 1 trillion won in just two months, but experts said some investors could mitigate their losses. The HSCEI has recently experienced an upward trajectory and has been steadily climbing within the 5600 to 5700 range since February 2024, or an approximate 10 percent surge from the beginning of the month. This upward trend is expected to alleviate the financial strain on commercial banks and investors.

Among other ELS sellers, KB Kookmin Bank, which sold a substantial volume of ELS-related products, has faced considerable losses because most were so-called knock-in products. Knock-in levels are important to ELS investors. If a fall in stock indexes used as ELS underlying assets delays early redemption and the value of underlying assets comes close to knock-in levels, it raises the risk of principal losses.

Financial experts said that for investors whose ELS products mature after July 2024, the second half of the year holds a more optimistic outlook, as their knock-in level has been set at the 4500 range, the threshold at which the products are susceptible to losses.

Some stakeholders remain cautious about the optimistic outlook as the recent rise in the HSCEI could be a one-off event.

By Park In-hye, Yoo Joon-ho and Han Yubin

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]