NPS bows to pressure to up domestic equity ceiling

The National Pension Service has bowed to pressure from retail investors to raise the upper limit for domestic stock purchases, after it was blamed for leading South Korean pension funds' net selling of 15.5 trillion won ($14 billion) on the main bourse since the beginning of the year.

The NPS' top decision-making committee passed a proposed readjustment of its asset allocation weighting on Apr. 9 to increase the upper ceiling of domestic stock holdings to 19.8% from the previous 18.8%. In other words, the band of its Korean stock holdings was widened to a range of 13.8-19.8% from the previous 14.8-18.8%.

The decision followed protests from retail investors who traveled last month to the NPS headquarters in Jeonju, a three-hour drive south of Seoul, to stage protests against the stock selling they blame for the Kospi's rangebound trade.

They also filed petitions with the presidential Blue House by publicly requesting on the presidential website that the office push the NPS to buy more domestic stocks, by raising the domestic equity ceiling.

The committee meeting was brought forward from the regular monthly gathering scheduled for the end of this month, reversing its Mar. 25 rejection of the proposed adjustment to the NPS' domestic stock weighting. It was convened just after the ruling Democratic Party lost the mayor by-elections in the country's two largest cities of Seoul and Busan this week.

Domestic stocks stood at 176.7 trillion won ($158 billion) at the NPS as of the end of last year, making up 21.2% of its 833.5 trillion won in assets. That was 4.4 percentage points higher than the end-2021 target of 16.8%.

To meet the previous band of 14.8-18.8%, the NPS was supposed to sell additional shares worth around $20 billion in the domestic stock markets by year's end.

Analysts said the upward revision of the NPS domestic stock ceiling won't spark fresh buying from the world's No. 3 pension scheme, but will likely stop its months-long selling spree.

Since the start of the year, pension funds have offloaded a net 15.5 trillion won on the main bourse, accounting for more than half of the 30.2 trillion won total net selling by institutional investors during the same period.

By contrast, retail investors purchased a net 28 trillion won in the Kospi market since early January -- when the Kospi first topped 3,000 points -- until the end of March, according to Samsung Securities on Apr. 9. They have stepped up buying since the KOSPI breached the psychologically important 3,000-level threshold.

Between late last year and January of this year, retail investors had outwitted foreign investors in domestic stock markets. In January alone, their top 10 picks returned an average 13.4%, higher than the average 4.11% from foreigners' top 10 choices in that month.

But individual investors trailed foreign investors between February and March when the stocks they had heavily bought into underperformed the broader market.

Their stock choices remained focused on growth names such as bio, battery, internet and gaming companies. But foreign investors shifted toward economically sensitive stocks and those set to benefit from interest rate hikes, after the spike of the 10-year US treasury yield.

Korean stocks at the top of foreign investors' net buying in March:

Company	% change in March
POSCO	13.67%
KB Financial Group	28.31%
SK Telecom	11.11%
Shinhan Financial Group	13.65%
Source: Samsung Securities

The 10 stocks at the top of foreign investors' buy list in both February and March returned an average 4.6% and 16.74%, respectively, for the month. 

In comparison, retail investors' top pick had been Samsung Electronics between January and March. Their net purchases of the world's largest memory chipmaker amounted to 3 trillion won in February and 2.5 trillion won in March. But their top 10 stocks in March returned a negative 3.55% that month.

Korean stocks at the top of retail investors' net buying in March:

Company	% change in March
Samsung Electronics	-1.3%
SK Hynix	-6.36%
LG Chem	-3.13%
Naver	0.53%
SK Innovation	-15.93%
Source: Samsung Securities

Write to Jun-ho Cha, Eui-Myoung Park and Sung-mi Shim at (Correction: In the second paragraph, the revised range was corrected to 13.8-19.8%)

chacha@hankyung.com
Yeonhee Kim edited this article.