A person enters a regional office of the National Pension Service in western Seoul on April 8.NEWS1
Uncertainty is looming over the Korean stock market as the National Pension Service (NPS), one of the country's largest investors, is set to offload potentially tens of trillions of won into the market as part of its rebalancing measures that begin on Wednesday.
The prospect of large-scale sales by the NPS comes at an especially fragile time, when foreign investors have been posting record net selling for a second straight month.
The NPS’s holding of domestic stocks has accounted for 30 percent of the institution’s portfolio, Daishin Securities estimated on Tuesday. The figure is based on last Friday’s closing when the Kospi finished at 8,411.21.
That is roughly 5 percentage points above the 25.1 percent reported at the end of April and 9.2 percentage points higher than the fund's newly-raised target allocation of 20.8 percent.
At current market value, the excess domestic equity holdings amount to about 164 trillion won ($106 billion).
The NPS manages its portfolio according to a long-term strategic asset allocation plan designed to prevent excessive concentration in any single asset class and stabilize long-term returns through diversification.
A person receives consultation at a local branch of the National Pension Service in western Seoul on June 29.NEWS1
After a sharp rally in Korean equities pushed domestic stock holdings well above target this year, the pension fund raised its target allocation for Korean stocks from 14.9 percent to 20.8 percent late last month.
Even after the upward revision, the pension fund's domestic equity allocation is still estimated to sit well above its target.
Fortunately, not all of the fund's excess holdings are subject to immediate sale.
The state pension agency is allowed to deviate from its target allocation within a strategic asset allocation band of plus or minus 6 percentage points and a tactical asset allocation band of plus or minus 2 percentage points. If it fully utilizes those allowances, it can keep its domestic equity weighting at a maximum of 28.8 percent
Shinyoung Securities estimates that in a scenario where the NPS relies solely on its strategic asset allocation band, which would cap its domestic equity weighting at 26.8 percent, it would need to sell up to 74.4 trillion won in domestic stocks if the Kospi crosses 9,000.
The Kospi closing at 8,476.48 is displayed at a Hana Bank's trading room in central Seoul on June 30.YONHAP
The NPS has indicated it does not intend to fully utilize the tactical allocation range.
If the Kospi reaches 10,000, required sales could increase to 120.9 trillion won, according toShinyoung Securities.
On Tuesday, the Kospi closed at 8,476.48, up 81.83 points, or 0.97 percent from the previous trading session. Based on that closing level, analysts estimate the pension fund would need to unload roughly 50 trillion won worth of domestic stocks to complete its rebalancing.
The NPS said it would sell the shares gradually to avoid disrupting the market.
"If we were a private investor focused solely on making money, we would dump shares and buy back at lower prices," Chairman Kim Sung-joo said on June 23. "But we have to proceed cautiously."
"The recent downfall in the market has reduced the burden of immediate selling pressure,” said Cho Yong-gu, a researcher at Shinhan Securities. "We have also seen signs of pre-emptive rebalancing, including net sales of around 2 trillion won by pension funds during May and June."
National Pension Service Chairman Kim Sung-joo speaks at an undated meeting.NATIONAL PENSION SERVICE
Analysts say a key concern is that the pension fund's holdings are heavily concentrated in market heavyweights such as Samsung Electronics and SK hynix. With the Kospi dominated by large-cap stocks, even relatively small sales by the pension fund could ripple through the broader market.
So far this year, the institution’s largest net sale has been Samsung Electro-Mechanics at 1.32 trillion won, followed by SK hynix at 970.1 billion won, Samsung Electronics at 967.3 billion won and Hyundai Motor at 770.1 billion won.
The risk is likely to be compounded by aggressive foreign selling.
Foreign investors sold a record 48.6 trillion won worth of Kospi-listed stocks in June, the largest monthly net outflow on record. Combined with net sales of 44.7 trillion won in May, foreigners have offloaded a total of 93.3 trillion won over the past two months.
More than 80 percent of those sales — about 74.78 trillion won — came from Samsung Electronics and SK hynix alone.
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
