Korea Investment & Securities Co. said the National Pension Service's plan to increase the share of domestic investments could work positively for the foreign exchange market. It also noted that if the pace of overseas investments slows, dollar demand could fall and the won-dollar exchange rate could decline.
The National Pension Service is set to hold a Fund Management Committee meeting on the 26th to discuss portfolio investment weights by asset class. The backdrop is that the shares of both domestic and overseas stocks are exceeding their targets amid a global stock rally led by artificial intelligence (AI).
As of the end of Oct. 2025, the National Pension Service's domestic stock share stood at 17.9%, well above the year-end 2025 target of 14.8% and the year-end 2026 target of 14.4%. It has already surpassed the upper bound of the strategic tolerance range, set at ±3 percentage points (P) from the target weight.
Moon Da-un, a researcher at Korea Investment & Securities Co., said, "We expect discussions to proceed in the direction of reducing the share of overseas investments and increasing the share of domestic investments, considering the effect of stabilizing supply and demand in the foreign exchange market," adding, "In this case, dollar demand is expected to shrink and the equilibrium exchange rate to decline."
Moon estimated that if the share of overseas stocks is expanded to 38.9% by 2026 as planned, the increase in overseas assets would reach about 140 trillion won (about $95 billion). In contrast, if the level is maintained at the 2025 year-end target of 35.9%, the net increase in overseas assets would be about 90 trillion won, meaning the increase in overseas assets could shrink by up to 50 trillion won (about $30 billion) compared with the existing plan.
Moon said, "In dollar terms, that would mean a reduction in demand of about $30 billion," adding, "All else equal, it would slow the pace of the exchange rate's rise." Accordingly, the equilibrium exchange rate could fall by about 10 won.
However, this assumes other conditions are equal, and in practice, sentiment on the weak won needs to stabilize, Moon noted. Moon said, "Including the National Pension Service's adjustment of its overseas investment share, activation of strategic currency hedging, and a currency swap with the Bank of Korea, the government's policy stance is clearly supporting a decline in the exchange rate, which over time will help stabilize sentiment and ease supply-demand imbalances."