Korean pensions sell off net $2.6 bn in domestic equities since August

South Korea’s pension funds including the National Pension Service sold off a net 3.12 trillion won ($2.6 billion) worth of domestic equities from August to date to meet its annual domestic target in its investment portfolio.

The NPS accounted for nearly almost all of the selling, and experts are saying that the pension fund may unload up to a net 8 trillion won worth of domestic equities by the end of the year. The NPS target portion of domestic equities is 17.3% for the year, but the fund already exceeded this with 17.5% by June.

The NPS scooped up stocks worth 16.8 trillion won between April and June, grabbing bargains as the market bled in the wake of the coronavirus.

“Generally, the NPS tends to make additional buys during the second half of the year to meet its target portion of domestic equities. This year is unusual as the fund is selling to meet its target,” said Noh Dong-kil, an analyst at NH Investment & Securities.

The most substantial sell-off by the NPS was its timely sale of 366 billion won worth of shares from Kakao Corp. this year. The platform giant’s share price surged 148% since the beginning of the year. At the end of last year, NPS held a 9.2% stake in Kakao valued at 1.21 trillion won -- this shot to over 3 trillion won when the global pandemic broke out.

The spike in share price prompted the pension fund to sell off some of its holdings for handsome returns.

“Pension funds don’t set their target returns high given their nature so it makes sense that the NPS would sell off surging shares to make gains,” said Lee Kyung-soo, the head of research at Meritz Securities Research Center.

Aside from Kakao, the pension fund also unloaded holdings from BBIG (bio, battery, internet, game) companies that dominated the domestic market this year. The NPS sold off Samsung SDI Co. and NCsoft Corporation shares worth 207.5 billion won and 111.2 billion won, respectively.

There are views that the pension fund’s continued selling streak may affect companies in which the NPS holds a substantial stake. According to market tracker FnGuide, the NPS holds over a 5% stake in 295 companies and the pension fund increased its holdings in over 120 companies after the first quarter.

Earlier this year, the pension fund purchased 73.5 billion won worth of shares from game app developer DoubleU Games Co., over 5% of the company’s market cap. The fund also increased its holdings in clothing company F&F, healthcare company Handok and travel company ‎Lotte Tour Development Co.

A number of companies saw their share prices increase due to the pension fund’s purchases. But some forecast the selling trend, on the other hand, to have limited market effect.

“In the past institutional investors were dominant and had extensive influence in the market, but recently the market trend is led by retail investors so the pension fund offloading equities is unlikely to have much impact,” said Lee from Meritz.

Write to Jae-won Park at wonderful@hankyung.com