A historic stock selloff has driven South Korea's retail investors toward complex structured products as the risk-loving cohort continues to look for ways to boost returns. Equity-linked securities dangling annualized coupons of 40% to 50% have attracted renewed interest from mom-and-pop traders. Sales rose to more than a three-year high in July, led by notes tied to Samsung Electronics Co. and SK Hynix Inc.

The boom comes as regulators moved to curb frenzied retail demand for single-stock leveraged exchange-traded funds, which were blamed for amplifying market swings during the benchmark Kospi's 22% plunge last month. This suggests that one of the biggest market routs in recent memory has done little to dampen retail appetite for risk, but just altered the products they choose to pursue.

About 3.5 trillion won ($2.5 billion) of ELS products were sold in July, the most since April 2023, according to data from the Korea Financial Investment Association. Meritz Securities Co. earlier this month issued an ELS tied to Samsung and SK Hynix, offering an annualized yield of 43.4%. That comes with equity-like risk: investors can lose their principal if either stock plunges 70% during the life of the note. Starting next month, the Financial Supervisory Service will tighten oversight of structured products and require brokerages to warn ELS investors when products approach knock-in levels.