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NPS to raise exposure to Kosdaq-listed blue chips

The pension fund is revising internal benchmarks for domestic equities to be adopted from 2022

By Jul 18, 2021 (Gmt+09:00)

Kosdsq rose to a record-high close of 1,054.31 on July 15
Kosdsq rose to a record-high close of 1,054.31 on July 15

The National Pension Service (NPS) will raise exposure to up-and-coming biopharmaceutical, electric vehicle parts, entertainment and gaming companies in South Korea by adding the Kosdaq-listed blue chips to the basket of stocks it tracks.

In its first extensive revision to the internal stock benchmarks in 15 years, the South Korean pension fund is aiming to better keep track of changes in the industrial landscape tp achieve higher returns on a steady basis. The benchmark revisions will also help to diversify the NPS' domestic stock portfolio weighted towards big companies traded on the main Kospi bourse.

The NPS' top decision-making body Investment Management Committee was informed of the benchmark revisions at a regular meeting late last month, according to financial industry sources on July 15.  In June last year, the NPS had outsourced its stock benchmark revisions to the Korea Exchange. 

Once the revisions are finalized later this year, they will become a news standard by which the $775 billion pension scheme chooses domestic stocks to invest in and measure its portfolio's performance, starting from next year. 

For its direct equity investments, the tentatively named "NPS-KR 250 index" will serve as a new benchmark. It will encompass the representative stocks listed on the Kospi and the Kosdaq. Up to now, the NPS' domestic stock portfolio for direct management has followed only the Kospi-listed ones.

For externally-managed stock portfolios, it will offer both the Kospi index and the Kosdaq 150 index as benchmarks, increasing the number of Kosdaq-listed stocks it tracks to 150 from 100.

Since 2016, the pension scheme has used both the Kospi index and the Kosdaq 100 index as the yardsticks for the performance of its outsourced domestic equity investments.

After its Kosdaq debut in September 2020, Kakao Games is now the second-largest stock on the junior market
After its Kosdaq debut in September 2020, Kakao Games is now the second-largest stock on the junior market

Currently, the 10-largest stocks on the Kosdaq are biopharmaceutical, battery, entertainment and game companies. They include the top-ranked Celltrion Healthcare Co., Kakao Games, Ecopro BM Co., an auto parts manufacturer for electric vehicles, CJ ENM Co., SK Materials Co. and Celltrion Parhm Inc. 

An increase in the NPS' exposure to the Kosdaq is expected to add new upward momentum to the junior stock market, encouraging other institutional investors to follow suit, which in turn will reduce its market volatility.

The Kosdaq index rose to an all-time closing high of 1,054.31 thanks to heavy foreign buying on July 15, before retreating slightly on Friday.

The NPS's domestic stock portfolio amounts to 178 trillion won ($156 billion), representing 7% of the country's market capitalization.

Write to Jung-hwan Hwang and Sul-gi Lee at jung@hankyung.com

Yeonhee Kim edited this article.

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