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Portfolio readjustments

NPS under fire over rule change to raise domestic stock purchase limit

Mar 25, 2021 (Gmt+09:00)

NPS under fire over rule change to raise domestic stock purchase limit

South Korea’s National Pension Service (NPS) came under fire over its expected rule change aimed at raising the upper limit for domestic stock purchases, giving in to the pressure from retail investors.

Critics say the state pension operator could be in trouble over the long-term if it expands its domestic stock holdings beyond appropriate levels as it would be forced to unload them eventually amid expectations of depleting funds at its vaults.

According to government and brokerage industry officials on Mar. 24, the state pension fund will convene an Investment Management Committee meeting on Friday to readjust its asset allocation weighting in a way to widen the band for domestic stock holdings.

Under the proposal, the NPS will raise the portion of its domestic stock purchases to a range of 13.3-20.3% of the total asset classes from the current band of 14.8-18.8%.

Graphics by Jerry Lee
Graphics by Jerry Lee

“The majority of the committee members, including those from the government side, are in favor of the proposal. It is expected to be approved at the meeting without much difficulty,” said a committee official.

As of the end of 2020, the state fund operates 833.5 trillion won ($734.4 billion) in assets as the world’s third-largest pension fund operator. Of the total amount, domestic stocks accounted for 21.2% at 176.7 trillion won.

That exceeded its 18.8% ceiling, as large-cap stocks rallied in the final few months of 2020, pushing up both the main Kospi and junior Kosdaq markets to close the year as one of the best performers across the globe.

Domestic equities were the best-performing asset class for NPS last year, yielding a return of 35% in 2020 on average.

As its domestic stock holdings grew out of proportion, the pension fund, the biggest player among local institutions, went on a selling spree from the start of this year.

The NPS has sold a total of 15 trillion won on domestic bourses in the past three months to cut its exposure to Korean equities, more than four times the 3.42 trillion won in net selling by the NPS and other domestic pension funds in full 2020. The NPS took the vast majority of the selling last year.

Market watchers said the NPS may need to dispose of an additional 15 trillion won worth of domestic shares for the rest of this year to meet its portfolio allocation targets.

The heavy selling, carried out almost every day from the onset of the year, has put downward pressure on the domestic stock markets, keeping the Kospi index from barely rising above the psychologically important 3,000 points.

Graphics by Jerry Lee
Graphics by Jerry Lee


This, however, has invited strong protests from retail investors, who bet on a continued domestic stock market rally into this year.

The Korea Stockholders Alliance, an advocacy group of some 22,000 smaller investors, denounced the state fund’s selling spree, calling it an “act of betrayal” against individual investors who contribute to the NPS.

Earlier this month, the group staged a protest in front of the NPS’ headquarters in Jeonju, North Jeolla Province.

They also filed petitions with the presidential Blue House by posting their request on the Cheong Wa Dae website for a change in the NPS regulations to buy more domestic stocks. They even demanded the state fund’s stock operation division be disbanded, “taking responsibility for the recent stock market declines.”


Analysts said the state pension fund’s plan to readjust its asset allocation goes against its own rules set up to curtail its exposure to domestic stocks as it has often been dubbed “the whale on a small pond” in reference to the huge amount of its holdings on the domestic equities markets.

In May last year, the NPS unveiled mid-term investment plans, under which it pledged to lower its domestic stock holdings to 15% of the total assets by 2025. It also aims to slash its domestic fixed-income assets and instead increase its allocation to overseas equities and alternative investments.

Retail investors, widely known in Korea as the Ants.
Retail investors, widely known in Korea as the Ants.
“Given the steady decline of the population and the growing number of pension recipients, the state fund’s assets under management are expected to fall accordingly, meaning it may have to offload domestic stocks in large quantity someday, dealing a heavy blow to the market, unless it reduces such portions gradually,” said an industry official.

Some opponents of the NPS’s latest move said it may have been politically motivated ahead of the by-elections for Seoul and Busan mayors on Apr. 7 in a bid to woo voter support for the ruling party candidates.

The state fund’s internal investment review panel members are also known to have opposed the proposed realignment of portfolio weighting in favor of domestic stocks.

The health and welfare minister heads the committee that decides on the rebalance of the NPS’ asset classes on Mar. 26.

“The state fund should make any decisions on its investments independently. That way, it can serve the people,” said a financial market analyst.

Write to Kyung-Mok Noh and Jung-hwan Hwang at

In-Soo Nam edited this article.

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