(May 14): The months-long rally in Hong Kong-listed Chinese equities may soon get a boost from maturing South Korean structured notes tied to them, according to Goldman Sachs Group Inc.

A gain of just about 3% will take the Hang Seng China Enterprises Index to the key 7,000 level, where a large chunk of knockout barriers for Korean structured products is concentrated, Goldman’s trading desk wrote in a note published on Sunday (May 12) that was seen by Bloomberg. Hitting those levels may force dealers to cover short positions to hedge against more upside risks.

About US$2.2 billion notional of such notes will expire in May and June, according to the note.

Structured products are complex pre-packaged investments whose performance or value is linked to that of an underlying asset, such as stocks, indexes or currencies, or a mix of those, and often include derivatives. Korean banks and brokerages sold billions of dollars worth of these equities-linked securities (ELS) at the peak of Hong Kong’s stock market in early 2021.

Dealers of ELS products have an exposure similar to buying a put option. For buyers, the investment equals the combination of selling a put option and receiving fixed income from these securities.

The potential scenario laid out by Goldman marks a reversal from what was being expected earlier this year, when a maturity wall of Korean ELS was seen as exacerbating losses in Hong Kong-listed Chinese stocks. That’s after the HSCEI gauge has rebounded about 36% from a January low, thanks to a combination of policy support, cheap valuations and foreign inflows.