This Month's Issuance Decreases by About 54%
Samsung Electronics Buys Over Three Times More
[Asia Economy Reporter Minji Lee] As individual direct investments have significantly increased, the issuance volume of equity-linked securities (ELS), once called the 'national financial technology,' continues to decline. Due to lower returns and higher reference prices, ELS are now viewed as 'low-return, high-risk' products.
According to the Korea Securities Depository's SaveRo on the 28th, the issuance volume of ELS (in KRW and foreign currency) from January 1 to 27 this month reached 3.0793 trillion KRW. This is about 54% less than the issuance volume in the same month last year (6.7608 trillion KRW) and even less compared to January 2019 issuance volume (4.3184 trillion KRW). Last year, after the global stock market crash in March and the margin call (additional collateral payment) incident, the issuance volume sharply dropped by more than 30% compared to the previous year (99.9011 trillion KRW) to 69 trillion KRW, and the downward trend in issuance has continued into the new year.
This amount is even less than the scale of individual investors purchasing Samsung Electronics shares during the same period. Individuals bought Samsung Electronics stocks worth 8.945 trillion KRW, and combined with Samsung Electronics Preferred shares (1.6616 trillion KRW), the total reaches 10.6066 trillion KRW, which is more than three times the ELS issuance volume this month.
On the other hand, the redemption amount of ELS was 6.18 trillion KRW, exceeding the issuance amount. This indicates that investors did not reinvest after redemption.
The decline in individual investors' interest in ELS, a representative medium-risk, medium-return product, is closely related to changes in investment tendencies. As individuals have significantly increased their investments in individual stocks, interest in products like ELS, which lock funds for a long period, or funds that cannot significantly increase returns through diversification, has decreased. A financial investment industry official explained, "Among investors, Samsung Electronics is regarded as a 'safe asset,' while ELS is perceived as a high-risk product where losses can occur at any time. The coupons currently offered by ELS are unlikely to be attractive to investors who have experienced high returns."
For index-linked ELS, which account for more than 80% of issuance, the burden of potential declines outweighs that of rises, further discouraging investment. The index-linked ELS issued domestically include major indices such as KOSPI 200, S&P 500, Euro Stoxx 50, and Hong Kong H Index. Since hitting their lowest points in March, these indices have surged by 96%, 67%, 48%, and 36%, respectively. Particularly, the KOSPI 200 recorded the highest index growth rate among the Group of Twenty (G20) countries last year. Due to the sharp rise in indices, coupon yields have decreased, and reference prices have increased, causing the average coupon yield to fall below 3%.
Securities firms are also reducing issuance volumes to avoid regulatory scrutiny. Regulations require maintaining the outstanding balance of ELS and DLS (derivative-linked securities) below 50% of their capital to ensure market soundness. Credit rating agencies have warned securities firms that increase hedge ratios following ELS issuance that there is a risk of rating downgrades.
For the time being, it is expected that ELS issuance based on overseas indices and stocks will increase more than those based on the domestic stock market, which carries concerns of sharp rises. Additionally, issuance balances are anticipated to recover from the second half of the year. Jeon Gyun, a researcher at Samsung Securities, explained, "Compared to last year, the stock market's growth potential this year is relatively limited, and in the second half, as expectations for economic recovery wane, volatility may increase. This is why we expect demand for ELS as a medium-return product to recover."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
