In the first half of this year, the outstanding balance of domestic derivative-linked securities hit bottom and rebounded slightly. After the massive loss incident in Hong Kong equity-linked securities (ELS) at the end of last year drove the derivative-linked securities balance to an all-time low, issuance in the first half outpaced redemptions, showing signs of recovery.
The Financial Supervisory Service said on the 23rd that the outstanding balance of derivative-linked securities in the first half of this year was 87.2 trillion won, up 5.7 trillion won from the previous half.
Derivative-linked securities refer to securities whose returns are determined by price fluctuations of underlying assets such as stock prices, interest rates, exchange rates, crude oil, and grains. Products that use stock prices or indexes as underlying assets are generally called equity-linked securities (ELS) and equity-linked bonds (ELB), while those that use bonds, commodities, or exchange rates as underlying assets are called derivative-linked securities (DLS) and derivative-linked bonds (DLB). The FSS data released this time collectively refer to ELS, ELB, DLS, and DLB as derivative-linked securities.
In the first half, issuance of derivative-linked securities totaled 34 trillion won, up 6.5 trillion won from a year earlier, while redemptions came to 26.1 trillion won, down 13.3 trillion won.
ELS issuance was 21.7 trillion won, up 3.5 trillion won (16%) from a year earlier. The rise in domestic and overseas stock markets and interest rate cuts this year helped partially restore demand for ELS. The share of non-principal-protected products was 46.5%, up from a year earlier, while the share of public offerings fell to 84%.
Principal-guaranteed issuance was 11.6 trillion won, a sharp decline from the previous half, which appears to reflect a base effect from concentrated refinancing demand tied to year-end severance pay allocations in the second half of last year.
By underlying asset, KOSPI 200 accounted for 8.9 trillion won, the S&P 500 for 8 trillion won, the Euro Stoxx 50 for 7.2 trillion won, and the Nikkei 225 for 2.7 trillion won. As global market volatility widened, demand increased for ELS linked to overseas indexes, raising the share of overseas indexes and slightly reducing the share of KOSPI 200.
DLS issuance reached 12.3 trillion won in the first half of this year, up 3 trillion won from a year earlier. Of that, principal-guaranteed issuance was 10.6 trillion won, up 3.2 trillion won year over year. This is attributed to the advantage of maintaining stability in a low-interest-rate environment while offering the potential for higher revenue than deposits.
DLS redemptions were 8.1 trillion won, up from a year earlier but slightly down from the previous half. Outstanding DLS issuance stood at 33.6 trillion won, up 3.7 trillion won from the end of last year.
Profit and loss related to derivative-linked securities was 5.3% per year for ELS, up 12.6% from a year earlier, and the ELS return was 3.3% per year, up 1.3%.
The FSS said, "If favorable issuance conditions such as rising global stock markets and a low interest rate trend are maintained, ELS issuance is expected to keep increasing," adding, "We will strengthen monitoring in light of investor losses due to rising global market volatility."