The gap between the overseas and domestic stock investment ratios of the National Pension Service is expected to exceed 20 percentage points for the first time next year. This is due to the National Pension Service's continuous increase in overseas investments to achieve its long-term revenue goals while reducing domestic investments. Some in the market argue that with the index decline, the 'big player' like the National Pension Service needs to step in as a savior.
◇ Overseas stock ratio 35.9% next year… domestic stocks 14.9%
According to the mid-term asset allocation plan of the National Pension Service on the 29th, the National Pension Service will reduce its domestic stock target ratio from 15.4% at the end of this year to 14.9% by the end of 2025. During the same period, the overseas stock ratio will increase from 33.0% to 35.9%. This means that the gap between the two asset ratios will exceed 20 percentage points for the first time next year, up from 17.6 percentage points this year.
The widening ratio of domestic and overseas stocks in the National Pension Service has been due to its fund management policy direction, which has focused on maximizing revenue through enhanced overseas investments for several years. As of the end of September this year, the National Pension Service's fund amounts to 1,146 trillion won, but this money will disappear in just 30 years, by 2054, due to demographic changes resulting in many more pension beneficiaries than contributors.
In response, the National Pension Service is actively turning its eyes toward overseas markets, which have better expected revenue than domestic ones. From January to September this year, the revenue return on domestic stocks for the National Pension Service was 0.46%, while the overseas stock revenue reached 21.35%. According to the National Assembly Budget Office, raising the fund management revenue rate by just 1 percentage point could delay the fund depletion by about six years. The overseas investment ratio in the overall National Pension Service portfolio was 51.6% last year, and this ratio is expected to expand to 60% by 2028.
The issue is that with the recent turmoil in the domestic stock market, there is a call for large players like the National Pension Service to act as a firefighting force. The KOSPI index, which finished 2023 at 2,655.28, fell to 2,404.77 as of the closing price on December 27, marking a 9.43% drop. Given that the U.S. NASDAQ Composite and S&P 500 indexes surged by about 30% during the same period, the situation is understandably disheartening for domestic investors.
As market sentiment worsens, voices in the political arena are urging the National Pension Service to increase its share of Korean stocks. On the 12th of this month, Im Kwang-hyun, a member of the Democratic Party of Korea from the National Assembly's Planning and Finance Committee, wrote on social media, "Immediate measures are necessary to resolve the 'Korea discount' (undervaluation of the Korean stock market) and to defend the exchange rate, and wouldn’t it be great if the National Pension Service could invest some of the revenue from its overseas holdings back into the domestic market?"
◇ Theoretically, domestic stock ratio could increase by over 7 percentage points
Some in the market argue that although the KOSPI index has fallen nearly 10% since the beginning of the year, this has provided the National Pension Service with an opportunity to hold more domestic stocks. As of the end of September this year, the domestic stock investment ratio within the National Pension Service fund (1,146 trillion won) was 12.7% (145.766 trillion won). Assuming the index remains at its current level, this means there is a 2.2 percentage point investment capacity compared to the target ratio of 14.9% for 2025.
Additionally, to secure flexibility in asset allocation based on market conditions, the National Pension Service allows a deviation of ±5% from its target ratio for stocks. Considering this aspect, it theoretically means that the National Pension Service could increase its domestic stock ratio by 7.2 percentage points more than now. A financial investment industry official noted, "If the National Pension Service takes a strategic position to buy at low prices during this period, the domestic stock market could gain strength in conjunction with the New Year effect."
However, it remains uncertain whether the National Pension Service will step in to support the domestic stock market by fully utilizing its investment capacity. Hong Chun-wook, head of Prism Investment Advisory and a former National Pension Service fund manager, stated, "When the KOSPI index rose to 3,300 in April 2021, the National Pension Service's domestic stock investment ratio reached 20%. While it was a timing for the National Pension Service to realize profits, demonstrators came to urge that it should not sell, and the government at that time was also pressured by public opinion to prevent sales."
Hong added, "Afterward, with the rapid drop in the index, the National Pension Service incurred significant losses, but no one was held accountable, and we must not allow such situations to be repeated."