The sharp decline in the South Korean stock market has prompted retail investors to turn to equity-linked securities (ELS) with annual coupon rates of up to 40% to 50%. In July, ELS sales surged to a three-year high, primarily focused on products linked to Samsung Electronics and SK Hynix. Regulators are curbing retail demand for leveraged exchange-traded funds (ETFs) tied to single stocks, which are believed to have exacerbated market volatility during last month's 22% drop in the benchmark KOSPI index. The recent market downturn has not diminished retail investors' risk appetite but rather shifted their investment direction. The market correction has provided an attractive entry point for ELS products, which can offer coupon payments as long as the linked stocks or indices remain within a predetermined range, although they may also face significant downside risks during major market declines.
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