Recently, pension funds led by the National Pension Service have played a significant role as saviors in the Korean stock market; however, forecasts suggest that this 'buy' trend may be approaching its end. Currently, pension funds are aggressively purchasing domestic stocks because the percentage of domestic stock holdings by pension funds surpassed their target due to the decline of the KOSPI index in the second half of last year. As they have restored their holding ratio back to the target through continuous buying, it is expected that the trading pattern of pension funds may change around March. Experts noted that it is time to keep an eye on the increasing influence of foreign investors following the resumption of short selling at the end of March.
According to the financial investment industry on the 27th, pension funds represented by the National Pension Service continued to achieve net buying for 38 consecutive trading days from December 27 last year to the 26th of this month, amounting to 3.894 trillion won. When including the KOSDAQ market, pension funds have purchased more than 8 trillion won in the Korean stock market since November of last year, leading the rising market. Thanks to the continuous buying momentum of pension funds, the KOSPI index, which had dropped to the 2300 level in early December last year, has now recovered to the 2600 level.
At the center of the 'Buy Korea' trend by pension funds is the elder brother, the National Pension Service. As of the end of November last year, the fund reserve of the National Pension Service stood at 1,185 trillion won. Among this, the investment amount in domestic stocks reaches 140.651 trillion won. However, when viewed as a percentage of the total reserve fund, it is only 11.9%. By the end of December, it is reported that the proportion of domestic stocks in the National Pension Service was around 12%. This figure is more than 3 percentage points below the target proportion of 15.4% for domestic stocks set by the National Pension Service for 2024.
The National Pension Service allows for flexibility in asset allocation within a range of ±5% (based on stocks) to accommodate target proportion overshooting or undershooting. Specifically, the strategic asset allocation (SAA) is ±3%, and the tactical asset allocation (TAA) is ±2%. SAA is the concept that involves mechanically executing buy and sell actions to adjust when the holding proportion falls below or exceeds the target. TAA is the range within which the fund management headquarters can operate at its discretion to seek excess revenue.
In other words, the domestic stock buying momentum of the National Pension Service that began at the end of last year is an effort to bridge the excessive gap between the actual holding proportion and the target proportion. This implies that Korean stocks have become cheaper, making it a low-price buying movement for pension funds. According to the medium-term asset allocation plan for the National Pension Service, the target proportion for domestic stocks is 14.9% by the end of this year. While it is noted that pension funds have been continuously buying domestic stocks for nearly 40 trading days, it is believed that their potential for additional purchases remains intact.
However, the prevailing view is that the National Pension Service will not fill its domestic stock purchase up to the target proportion (14.9%). This is because the stable management of the National Pension Service's retirement funds is as important as maximizing revenue. A senior official from an asset management company, who is a former member of the National Pension Service's fund management headquarters, said, "Given the characteristics of the National Pension Service, which avoids extreme actions, even if it is in a low-price buying phase, it will not aggressively chase purchases to fill up to the upper limit of the target proportion."
Kim Joong-won, a researcher at Hyundai Motor Securities, said, "Since the second half of last year, pension funds have net purchased more than 8.4 trillion won in domestic stocks," adding, "As domestic stocks have recorded higher revenue than other assets of pension funds this year, the adjustment of the TAA range for domestic pension funds is expected to be concluded soon."
Experts have noted that it will be necessary to closely watch foreign movements starting from the end of March when short selling resumes. Financial authorities plan to fully resume short selling on the 31st of next month. Research Institute Kim Joong-won said, "If the adjustment of the pension funds' permissible range concludes and short selling, which is sensitive to foreign investors, is fully resumed, the influence of foreigners in the domestic stock market will expand."