Subscribe
E-Paper
 |
| National Pension Service (NPS) headquarters located in Jeonju, North Jeolla Province / Courtesy of NPS |
Public pension fund allowed to hold local stocks up to 19.8 percent of its asset
By Anna J. Park
After the National Pension Service (NPS), the country's largest institutional investor in charge of the public retirement funds, decided to increase the maximum proportion of local stocks in its asset portfolio, its net-selling spree is expected to slow down for the time being.
During last Friday's operation committee members' meeting, the NPS decided to increase the maximum portion of local stocks in its portfolio from the current 18.8 percent to 19.8 percent. While the NPS has maintained an asset allocation goal for domestic shares at 16.8 percent, the increase in the upper limit from the current two percentage points to three percentage points, allows it to hold up to 19.8 percent in Korean stocks.
"The pension fund committee acknowledged the need to change the upper limit, considering that the upper limit band was set at a narrower level than other asset categories, and that the domestic stock proportion's deviation from the target goal has occurred more frequently over the past three years," the NPS said in a public statement, adding that during the past four months, the target goal has never been kept.
Given that the NPS' entire assets are estimated to be around 835 trillion won ($740 billion), the change means that it could hold an additional 8.35 trillion won worth of local stocks.
At the end of last year, the portion of local stocks among the NPS' assets stood at 21.2 percent, much higher than both the desired goal of 16.8 percent or the maximum target of 18.8 percent. This deviation from the target led the NPS to become a net-seller of local stocks for a record 51 consecutive trading sessions from Dec. 24 to March 12. The pension fund net-purchased for the next couple of days, yet it net-sold again from March 17 to last Friday, another 18 consecutive trading sessions of net-selling to meet the required asset allocation goal.
Market experts expect the NPS' decision will send a positive signal to the market, raising participants' expectations about Korean stock markets' performance. While it is hard to predict whether the NPS will turn to net-purchasing local stocks, it is expected that its net-selling will decrease.
"It is expected that the NPS will stop its automatic selling of Korean stocks due to the limit cap, as it now has more room and time to meet its target," Jeong Myung-ji, a senior researcher at Samsung Securities, said. "The Korean stocks' index is likely to move up with the NPS move to restrain net-selling, considering that foreign investors are also currently buying Korean stocks," he added.
However, there is criticism that the public pension fund should not be pressured by local sentiment. Some point out that foreign investors could more likely dump Korean stocks, as the NPS will buttress prices. Other have raised the concern that the NPS' increased portion of local stocks could burden the market when it has to sell stocks to pay out pensions.
"At some point the NPS will start selling local stocks to pay pensions to the public. This could add much negative pressure to the local stock markets," Hwang Sei-woon, a senior researcher at the Korea Capital Market Institute, said.
