SEOUL, Jan 23 Reuters South Korean retail investors have been caught out by an 11 fall in a key Hong Kong stock market index this month, as losses begin to materialise from about 15.4 trillion won 11.50 billion of indexlinked derivatives that mature this year.

Of the 432.6 billion won of combined products sold by South Korea39;s major banks that have matured so far in January, there have been losses of 216.4 billion won as of Friday, according to the banks.

The losses have occurred because the Hang Seng China Enterprise Index HSCEI, a benchmark reflecting the performance of mainland Chinabased companies listed in Hong Kong, declined below the socalled knockin level, which varies by product.

The structured notes track the performance of the HSCEI and promise bondlike coupons as long as the index does not drop below a certain level. But the HSCEI has more than halved from a February 2021 peak, leaving 11.5 billion of securities pegged to the index at risk of losses, as investor sentiment toward Chinese and Hong Kong shares deteriorated over worries about economic growth.

South Korea39;s financial watchdog on Jan. 8 began investigating 12 local banks and securities companies that sold the equitylinked securities notes pegged to Chinese stocks to see if there was any wrongdoing in their sales practices.

At that time, the Financial Supervisory Service FSS said it had uncovered issues including banks pressuring employees to sell highrisk, complex financial products that…