Kiwoom Securities 1584 and Others Confirm Principal Loss
Underlying Asset Samsung Electronics Stock Down Over 20% in One Year
Global Market Likely to Decline Further, Losses Expected to Increase
[Asia Economy Reporter Minji Lee] As the possibility of a giant step by the U.S. Federal Reserve (Fed) has resurfaced, causing a sharp decline in global stock markets, losses for investors who invested in equity-linked securities (ELS) appear to be confirmed. ELS are products that generate returns based on price fluctuations using major indices and individual stocks as underlying assets. If the price of the index or stock falls sharply or rises rapidly and fails to meet the redemption conditions, recovering the principal becomes impossible.
According to the securities industry on the 14th, investors who invested in ‘Kiwoom Securities 1584 (ELS)’ issued exactly one year ago have confirmed principal losses. This ELS uses only Samsung Electronics as the underlying asset, and if the underlying asset is below 80% of the initial reference price on the maturity redemption date on the 15th, only 80% of the principal will be repaid. At the time of issuance, the target price for Samsung Electronics suggested by the securities industry was well above 100,000 KRW, but contrary to this outlook, the stock price has dropped more than 20% compared to a year ago. If early redemption had proceeded as scheduled during the interim evaluations in September and December last year and March this year, investors could have earned up to 12% coupon returns, but in reality, out of the 840 billion KRW invested, only about 671 million KRW is expected to be returned to investors.
The situation is similar for ‘Eugene Investment & Securities 393 (ELS)’, ‘KBable 1777 (ELS)’, and ‘KBable 1790 (ELS)’ maturing this month, as well as ‘KBable 1811 (ELS)’, ‘KBable 1821 (ELS)’, ‘NH Investment & Securities 21021 (Public/ELS)’, and ‘Shinhan Financial Investment 21295 (Public/ELS)’ maturing next month. All seven domestic stock-type ELS have touched the loss zone, and it is estimated that the total investment of 2.3 billion KRW will hardly be fully returned to investors. To recover the principal, the underlying asset Samsung Electronics’ stock price must return to the issuance price, but it is difficult for the price to surge 30% from around 61,000 KRW to the 80,000 KRW level within just over a month.
With the triple burden of high inflation, high exchange rates, and high interest rates intensifying the domestic stock market’s sluggishness, the damage to derivative product investors is becoming a reality. Compared to a year ago, the KOSPI index has plunged about 23% from the 3,250 level to the 2,500 level. The stocks mainly used in ELS are large-cap stocks with relatively low price volatility. However, due to the tightening stance of major central banks, economic slowdown, and high exchange rate conditions, even large-cap stocks are struggling. Over the past year, major stocks have shown significant price volatility: SK Hynix (-22%), LG Electronics (-41%), POSCO (-34%), Kakao (-47%), Hyundai Motor (-28%), NAVER (-36%), Celltrion (-43%), among others.
Additionally, with the high possibility of further declines in global stock markets, the number of investors facing confirmed losses in ELS is expected to increase. Investors in ELS based on domestic stocks, as well as those linked to KOSPI200, Hong Kong H Index, or overseas stocks such as Tesla and AMD, should pay close attention to stock price trends. Gwak Byung-yeol, a researcher at Leading Investment & Securities, explained, "The delayed peak-out of U.S. inflation implies concerns about reduced market liquidity due to intensified tightening pressure and decreased corporate profits," adding, "The price-to-book ratio (PBR) of the KOSPI has retreated to 0.95 times, reflecting stock price levels in an economic downturn phase, which delays a short-term recovery in the stock market."
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