Home Retirement NPS’ selling exacerbates decline in Korea’s stock market

NPS’ selling exacerbates decline in Korea’s stock market

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By Lee Yeon-woo

Pension funds, widely regarded as major players in the Korean stock market, have maintained a selling trend so far this year, offloading approximately 1 trillion won ($748 million) worth of stocks. The continued selling has raised concerns, as it adds to the challenges faced by an already weakened stock market.

According to the Korea Exchange, Friday, pension funds net sold 909.5 billion won in the domestic stock market from Jan. 2 to Thursday. During this period, they maintained a consistent selling trend, displaying a net sell-off for 15 consecutive trading days, except for just three trading days this year.

Samsung Electronics has been the primary target of the sell-offs by pension funds. POSCO Holdings ranks second in terms of the volume sold by these funds. Other notable stocks that have seen significant sell-offs by pension funds include SK Innovation, Hyundai Mobis, Samsung SDI, and Hotel Shilla.

The Korea Exchange has identified pension funds as the main agents, which include the National Pension Service (NPS), the Government Employees Pension Service, the Teachers’ Pension, and Korea Post. Notably, the NPS, ranked as the world’s second-largest pension fund, holds a dominant share of those listed entities.

The NPS’ recent sell-off in the stock market is not a short-term phenomenon.

In 2020, during the peak of the COVID-19 pandemic, the NPS had actively purchased domestic stocks to support the faltering market, investing 5.7 trillion won from March to May as the market plummeted.

However, following the KOSPI’s peak at 3,266.23 next year, the NPS has shifted its strategy and continuously sold off stocks. This is in line with its asset allocation strategy, which aims to reduce the domestic stock proportion of its portfolio to 15 percent by 2025, while increasing investments in foreign shares.

Notably, the proportion of domestic stocks in the NPS’ portfolio this year has already fallen below the targeted level. Despite this, the NPS continues to sell, even though there is no regulatory requirement for such a disinvestment.

Market observers have expressed concerns that the NPS’ recent net selling appears excessive, even when considering its strategic shift. The KOSPI is currently undergoing one of the most significant declines among major international stock markets.

Moreover, this trend is seen as being out of sync with the government’s strategy of implementing various incentives to bolster the stock market.

“While the causes of the market’s early-year decline are varied, the current concern is the net selling by pension funds,” Kang Dae-seok, an analyst at Yuanta Securities said. “As the allocation of domestic stocks in major pension funds’ portfolio is below their target proportions, it seems unlikely that this selling trend will continue indefinitely. Nevertheless, it’s crucial for investors to formulate strategies focusing on industries less likely to be affected by this offloading of stocks.”

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