South Korea's Structured Product Issuance Surges 28.6% Amidst Market Recovery

South Korea has witnessed a notable resurgence in the issuance of structured financial products, with Equity Linked Securities (ELS) and other derivatives seeing a 28.6% year-on-year increase, reaching 25.8 trillion won in 2025. This rebound is attributed to a combination of factors, including a base effect following the significant downturn in 2024 and a recovery in the stock market. The Financial Supervisory Service (FSS) reported these figures on the 6th, highlighting a trend that underscores investor appetite for these complex financial instruments.

Last year's figures represent a significant recovery from the sharp decline observed in 2024, when ELS issuance plummeted to 20.1 trillion won from 33.9 trillion won in 2023. This drop was largely triggered by substantial investor losses stemming from Hong Kong H-index-linked ELS products, which suffered heavily due to a sharp decline in the index. The Hong Kong H-index ELS crisis, which affected products sold through bank branches since 2021, resulted in trillions of won in investor losses as the index fell dramatically in 2023-2024.

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Structured products can result in the loss of principal, so caution is advised.

While the issuance of structured products has recovered, the FSS continues to emphasize the inherent risks associated with these investments. Structured products are typically non-principal protected, meaning investors can lose their entire investment if the price of the underlying asset falls below a predetermined level. The FSS advises investors to exercise caution, carefully assess their risk tolerance, and invest only with surplus funds. The issuance of structured bonds, which offer principal protection but whose interest rates are tied to underlying asset performance, also saw a significant increase of 29.2% to 69.1 trillion won, largely driven by demand from the retirement pension market.

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As the structure allows for the loss of the entire principal if the price of the underlying asset falls below a certain level, investors should carefully select products that match their investment propensity with surplus funds.