The National Pension Service decided to raise its target allocation for domestic stocks and temporarily defer "rebalancing," which would automatically sell when domestic stock holdings exceed the target. The financial investment industry estimates the decision will increase investment in domestic stocks by about 7 trillion won.
However, some interpret that the higher target share for domestic stocks will not immediately lead to net buying, but rather give the fund breathing room by not having to sell domestic stocks it already holds.
Earlier, the National Pension Fund Management Committee held its first 2026 meeting on the 26th and reviewed and approved the "National Pension Fund portfolio improvement plan."
Typically, the committee's first meeting is held in February or March, but this year it was unusually held in January. The aim was to review investment strategies such as the allocation to domestic stocks amid a sharp rise in the KOSPI index and to discuss strategies in response to foreign exchange market volatility.
The most closely watched decision was the hike in the target allocation for domestic stocks. The committee raised the year-end target for domestic stocks by 0.5 percentage points, from 14.4% to 14.9%. As a result, the target allocation is expected to remain at the same level as the previous year. In contrast, the target allocation for overseas stocks was lowered by 1.7 percentage points, from 38.9% to 37.2%.
The allowable range by asset remains unchanged. The fund can operate flexibly within a range of ±5 percentage points by adding ±2 percentage points for tactical asset allocation (TAA) to the strategic asset allocation (SAA) baseline of ±3 percentage points. This allows domestic stocks to be held up to a maximum of 19.9% (14.9% + 5 percentage points).
In addition, considering the current situation in which the domestic stock ratio exceeds the target, the fund decided to temporarily defer rebalancing even if it falls outside the allowable range. Rebalancing adjusts allocations to keep asset class weights within the allowable range when they deviate from targets. Previously, assets were automatically bought and sold when the range was breached. The National Pension Service's domestic stock weight stood at 17.9% as of October last year, reaching the top of the SAA allowable range.
For now, the decision by the National Pension Service is expected to increase the amount available for investment in domestic stocks.
iM Securities estimated that, based on the total assets of the National Pension Service of 1,428 trillion won at the end of October last year, investment in domestic bonds would increase by about 17 trillion won and investment in domestic stocks by about 7 trillion won, compared with the previous plan. In contrast, investment in overseas stocks was expected to decrease by about 24 trillion won (about $16.8 billion).
Some analysts say the key is not the higher domestic stock allocation, but the deferral of rebalancing. Lee Sang-heon, senior research fellow at iM Securities, said, "In a bull market, if stock prices rise, the National Pension Service's domestic stock holdings can touch the upper limit of the allowable range," adding, "But with the rebalancing deferred this time, there is now room not to sell immediately even if the upper limit is touched."
Rather than interpreting that the National Pension Service will immediately turn to net buying of domestic stocks, the view is that the fund will have breathing room because it will not have to sell. In fact, the National Pension Service is estimated to have sold domestic stocks so far this year. According to the Korea Exchange (KRX) Market Data System, pension funds, including the National Pension Fund, recorded net sales of 1.65 trillion won in the domestic market from Jan. 2 to 26 this year.
Against this backdrop, some in the industry say the decision lays the groundwork for the National Pension Service to hold domestic stocks long term, helping support the domestic market.
There are also concerns about deferring rebalancing. A financial investment industry official said, "In effect, this makes it impossible to carry out sell-side rebalancing under current conditions," adding, "While it may help dampen volatility in the domestic market, in the long run the National Pension Service could face difficulties if it cannot sell when it needs to."