South Korea’s financial regulator will strengthen watch over equity-linked securities (ELS) products against the risk of exposure to volatile emerging markets and Chinese stocks.

The Financial Supervisory Service (FSS) said Wednesday that it will step up its surveillance on banks and brokerage houses selling ELS products, especially for products that track the volatile Hang Seng China Enterprises Index (HSCEI) in fear of stoking losses for individual investors.

The issuance of ELS reached a record high of 48.1 trillion won ($42.5 billion) in the first half of this year, with 23.4 trillion won worth products launched in the first quarter and 24.7 trillion won in the second quarter, according to the FSS.

Issues that take EuroStocks50 as one of the underlying assets amounted to 37.8 trillion won or 78.6 percent of the country’s total ELS issuance, and HSCEI reached 34.2 trillion won or 71.6 percent. The issuance of HSCEI-tracking products that could yield high returns on high risks quadrupled in the first half from 8.5 trillion won in the latter half of 2017.

The financial watchdog will develop a risk measurement index based on their underlying assets and potential risks to reinforce monitoring of the ELS products. It will also inspect banks who sold too much ELS products, an indication that some investors might have invested on the products with a limited knowledge of future risks.

The FSS found that 32.6 percent of the ELS investors invested in the products for the first time, and more than 39.0 percent were the elderly. If any warning signals are detected for the HSCEI-tracking products, it said it would immediately take measures to minimize the risks and encourage banks and brokerages to reduce the sale of the products.

By Jin Young-tae and Choi Mira

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