Derivatives gain favor as stocks turn volatile

Sales of derivative-linked securities in Korea reached a new record in the first half of the year amid greater volatility in the stock market, according to government data released Thursday.

The combined value of equity-linked securities (ELS) and derivatives-linked securities (DLS) issued from January through June came to 64.9 trillion won ($58.1 billion), a new half-year high, the Financial Supervisory Service said.

Those sales also were 5 trillion won more than the previous record, set in the latter half of last year.

The products track the performance of underlying assets but do not guarantee the principal, an attraction to investors who prefer to chase higher yields.

The issuance of ELS jumped 35.1 percent year-on-year to 48.1 trillion won in the six-month period as investors grew weary of increased stock market volatility. ELS are hybrid debt securities whose returns are determined by the performance of the underlying equities. ELS products track benchmark stock indexes, including the Korea Composite Stock Price Index (Kospi) 200.

Sales of DLS instruments, which track interest rates, currency values and other underlying assets, increased 4.3 percent on-year to 16.8 trillion won in the first half.

Investors in ELS and DLS products posted a combined return of 1.4 trillion won in the first half, down 500 billion won from the same period a year earlier.

The value of outstanding ELS products reached 63.7 trillion won as of end-June, down 1.3 percent from a year ago, with the amount for DLS vehicles gaining 2.4 percent to 37.3 trillion won.

Yonhap