China’s Equity Rout Puts at Risk $5 Billion Worth of Derivatives Held by Koreans
- Structured products tied to the Hang Seng China gauge at risk
- The HSCEI gauge is down nearly 50% from a February-2021 peak
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The persistent weakness in Chinese stocks listed in Hong Kong augurs ill for risk-loving retail investors in South Korea, given their exposure to the market through complicated structured products.
Equity-linked securities, or ELS, worth 7 trillion won ($5.3 billion) — mostly tied to the Hang Seng China Enterprises Index — were at risk of capital losses as of end-June, according to the Korea’s top watchdog Financial Supervisory Service. About 6 trillion of these are scheduled to mature in early 2024, the watchdog said last week, adding that it will continue to monitor the threat from HSCEI-tied structured products.