NPS may shed extra $21 bn in Korean stocks to cut exposure

The National Pension Service remains overexposed to South Korean stocks even after its 42-day consecutive net selling, and the world's third-largest pension fund may need to dispose of an additional 24 trillion won ($21 billion) worth of stocks at home for the rest of this year, according to securities industry estimates.

The $742 billion pension scheme plans to curtail exposure to domestic equities to 16.8% of its total assets, compared with 21.2% at the end of last year. Domestic equities were the best-performing asset class for NPS last year, yielding 35% in 2020 on average. 

To stick to the 2021 plan, NPS may need to cash out of an additional 23.7 trillion won of domestic stocks by year’s end, according to securities industry sources on Mar. 1.

The NPS and other Korean pension funds had already offloaded a combined 13 trillion won worth of stocks from both the Kospi and Kosdaq markets since the beginning of the year. The NPS took the vast majority of the selling.

The recent drop in bond prices, or a rise in bond yields, resulted in an increase in the equities proportion of the NPS' portfolio, while lowering that of fixed income. That means NPS has to sell more Korean stocks than earlier planned.

“The strong rallies of the Kospi-listed large caps, which began at the start of the year, further lifted the portion of domestic equities,” said NH Investment & Securities analyst Noh Dong-gil. “If NPS keeps selling at the current pace, it will likely reach its target ratio by early June.”

By contrast, NPS has even more room to buy global equities and bonds, as well as alternative assets, for which it lifted its target proportions for this year.    

Asset type	As of end-2020	2021 Target
Global equities	23.1%	25.1%
Global bonds	5.4%	7.0%
Alternative assets	10.9%	13.2%
Source: NPS

Between late December 2020 and early February of this year, the NPS and other South Korean pension funds dumped a net 9.9 trillion won worth of shares on the country’s main stock market, marking their largest amount of net selling over such an extended period. NPS took the majority of the sell-offs.

Write to Eui-Myung Park at uimyung@hankyung.com
Yeonhee Kim edited this article.