Distributor profile: Samsung's novel approach to equity-linked securities

Samsung Securities distributes structured products in South Korea and since the credit crisis has come up with another method of investing in equity-linked securities. Rebecca Hampson talks to Byunwong Ahn, product development manager at Samsung Securities in Seoul.

Samsung Securities distributes structured products in South Korea

Samsung Securities distributes products to a wide range of investors. High-net-worth individuals, the private banking sector, retail investors and institutional. “Our main goal is to restore the confidence of our customers in the wake of the financial crisis,” says Byunwong Ahn, product development manager at Samsung Securities in Seoul. “The South Korean derivatives-linked securities market is recovering, but it will take time to recover fully.”

After the crisis, South Korean investors were quick to appreciate the risk of non-principal-protected structured products. Ahn explains that those who lost money were hesitant to invest in equity-linked securities (ELS) again. “As a result, we launched new products and came up with another method of investing in ELS.”

The new method of doing business requires a closer examination of overall investment portfolios and more effort to introduce particular products that suit individual or institutional investors. “We have found that most of the distributors in Korea look for high coupon levels to show to clients,” says Ahn. “We decided to take a different approach and have attempted to change the culture and concept of investing in ELS. So now, we look at what clients need in their portfolios and see how ELS can help. We don’t force ELS into their strategies.”

Using this approach, Samsung has launched a digital autocallable ELS with a tenor of just six months. It has a 100% strike-out and is observed at three, four and five months. “It has been popular because demand for equity-linked securities and funds has risen where investors want better returns in this low interest rate environment,” says Ahn.

Distributing products since 2003, Samsung was the first domestic brokerage firm to offer in-house designed structured products in Korea. Roughly 80% of the products it distributes are based on equities, followed by commodity-based products at 10% then foreign exchange and interest rate products at 5% each.

“This year we have mainly sold ELS to a tune of 1.46 trillion won (US$1.2 billion). In addition, we have offered products based on sugar, Chinese yuan and US dollars and these have raised 33 billion won. We have also done some derivatives-linked securities, which are not linked with equities or the equity index,” he says.

Samsung has so far distributed products only to its own client base, which includes high-net-worth individuals, private banking, retail and institutional investors. “Most of our clients are Korean and we have been distributing our products to retail and high-net-worth clients for some time. We also focus on distributing to private banking investors and institutions such as pension funds, but sales have been low until recently,” says Ahn.

The firm attributes its success to price and regulatory issues. “At the moment, our preferred products are equity-linked structures and autocallables. We are focusing on the price, the stability and probability of performance,” says Ahn.

Samsung’s most recent product, the Super Step Down autocallable ELS, is based on South Korean equity stocks and has no knock-in barrier, which means performance does not need to reach a certain level in order to generate returns. Raising a total of 420 billion won to date, the product has a three-year tenor with an autocallable opportunity every four months. The strike decreases in steps of 5% from 90%, ending at 60%.

Preferring issuers that offer competitive pricing, a fast response and new products, Samsung uses several providers. “We like Credit Suisse, UBS and JP Morgan because they have a unique character,” says Ahn. “For example, Credit Suisse is good for products based on individual stocks, UBS has strengthened its offerings linked to the HSCEI index and provides quick service, while JP Morgan’s price was good in May and they provide timely and competitive pricing.

“We are seeing a market that is becoming more stable and concrete even though European risk has been high this year. We expect the Kospi index to have a reading of between 1,680 and 1,910 in the fourth quarter, compared to 1,823 on September 15. So, we anticipate a bullish market because of the good liquidity and encouraging outlook,” says Ahn.

The market is developing well thanks to increasing appetite on behalf of foreign investors for riskier assets. In the past year in South Korea, foreign investors were buyers of a net 544.9 billion won worth of stocks, and institutions purchased a net 57.9 billion won.