20160112-三星证券-2015_ELS_and_DLS_review_22页_1mb

Summary of 2015 ELS and DLS Market Review

Core Content

This document provides a comprehensive review of the Equity-Linked Securities (ELS) and Derivatives-Linked Securities (DLS) markets in South Korea for the year 2015. It highlights the performance, issuance trends, redemption patterns, and regulatory developments affecting these products. The analysis also includes insights into the maturity structure, underlying assets, and market participants.

Main Points

ELS Market Overview

• Total Issuances: ELS (including ELB) issuances reached a record high of KRW76.9t in 2015, up 7% from the previous year, but the monthly average dropped 47% from KRW6.7t in 1H15 to KRW3.5t in 2H15.
• Outstanding Balance: At the end of 2015, the outstanding ELS balance was KRW67t, up 18% year-over-year (y-y) from end-2014.
• Product Types: Index-based ELS accounted for 94% of total issuances, while stock-based ELS made up the remaining 6%. The popularity of index-based products was driven by HSCEI and EuroStoxx 50, which were used as underlying assets in 80% of ELS.
• Maturity Structure: Most ELS had maturities of 3 years or less, with 93% of principal-unprotected ELS having maturities of 2-3 years. Short-term products (less than 3 months) also had a significant share.
• Issuance Distribution: The top-five issuers accounted for 56% of total ELS/DLS issuances, indicating a concentrated market. Some smaller issuers experienced significant volatility in their ELS/DLS business.
• Annualized Returns: The annualized returns for ELS were 2.4% for principal-protected and 5.2% for principal-unprotected types. Publicly-placed principal-unprotected products had a monthly average return of 5.5%, while publicly-placed principal-protected products had a monthly average return of 3% in 1H15 and 2.6% in 2H15.

DLS Market Overview

• Total Issuances: DLS (including DLB) issuances reached KRW24t in 2015, up 11% y-y from KRW11.8t in 2014. However, the growth rate slowed to 2.8%.
• Outstanding Balance: The combined DLS/DLB issuance balance increased from KRW27t in 2014 to KRW32t in 2015.
• Product Types: DLS products were primarily based on index, rate, and forex assets. Index-based DLS accounted for 6,462.5t, rate-based for 6,210.3t, and forex for 163.2t.
• Maturity Structure: DLS products had a more diverse maturity structure compared to ELS. The portion of long-term products increased to 30%, while short-term products dropped to 23%.
• Issuance Distribution: The top-five issuers accounted for 62% of DLS/DLB issuance, with their composition changing slightly. Smaller issuers saw significant volatility, with some increasing by 600% and others declining by over 30%.

Regulatory Developments

• Regulatory Tightening: Financial authorities tightened regulations on ELS and DLS products in 2015, citing concerns about market skewness and potential systemic risk.
• Impact on Issuance: Regulations led to a decline in HSCEI-tied ELS and Absolute Return Swaps (ARS) issuances in 2H15, as issuers were restricted from issuing more than what was redeemed.
• Liquidity Management: Funds raised via ELS were required to be managed in special accounts to mitigate liquidity risks.
• Market Dynamics: The regulatory intervention prompted a shift in underlying assets, with S&P 500 becoming more popular due to its volatility in 2H15.

Key Information

• Market Growth: ELS and DLS markets saw rapid growth in the early years but experienced stagnation in 2015 due to external risks, regulatory changes, and lack of growth engines.
• Investor Behavior: Investor demand for ELS and DLS was influenced by market volatility, interest rates, and the performance of underlying assets.
• Product Volatility: The market's reliance on specific underlying assets (like HSCEI) led to increased risk for both issuers and investors.
• Future Outlook: The report suggests that the ELS and DLS markets may need to develop more innovative products with diverse underlying assets and maturity structures to sustain growth and reduce risk.

Conclusion

The ELS and DLS markets in South Korea grew significantly from 2011 to 2015, but faced challenges in 2015 due to external factors and regulatory tightening. While index-based products dominated, the market's concentration on certain assets raised concerns about systemic risk. The report emphasizes the need for more diversified and innovative products to support sustainable growth and reduce exposure to volatile underlying assets.