With the end of the National Pension Service's deferral of asset-allocation rebalancing set for the end of this month, selling by pension funds has intensified. Over the past two months, pension funds dumped 4.5 trillion won in the Korea Exchange's main board. This is the first time since January, when the rebalancing deferral was decided, that pension funds have engaged in "trillion-won" net selling.
According to the Korea Exchange (KRX) information data system on the 25th, pension funds recorded net sales of 2.318 trillion won on the main board this month (June 1–23). Flows by the National Pension Service are included in pension fund supply and demand. This has led to analysis that they may be preemptively selling domestic stocks ahead of the end of the asset-allocation rebalancing deferral next month.
Pension funds have logged six straight sessions of net selling on the main board recently, unloading 1.598 trillion won in that span, the data showed. The industry estimates that about half of the recent pension fund selling volume is from the National Pension Service.
What stands out is that "trillion-won" net selling has reemerged since May–June. This year, pension funds have maintained a selling bias in the KOSPI market, but from February to April they kept monthly net sales under 1 trillion won. However, they dumped 2.162 trillion won last month and 2.318 trillion won so far this month, sharply increasing the net selling scale. This is the first "trillion-won" net selling since January this year.
Last month, the Fund Management Committee raised the target weight for domestic stocks from 14.9% to 20.8% and expanded the upper limit to 28.8% by applying strategic and tactical bands. But with the KOSPI surging nearly 80% in the second quarter alone, operational efficiency became moot. With the National Pension Service's domestic stock weight reportedly exceeding 30% now, the dominant view is that mechanical rebalancing will unleash selling.
A reduction in the National Pension Service's domestic stock weight does not mean funds will immediately move into other assets such as overseas stocks and bonds. This round of selling is largely a "mechanical response" to forcibly trim the domestic stock weight that has already hit the cap under the asset allocation principle.. A National Pension Service official said, "Reducing the domestic stock weight does not mean we will unconditionally buy other assets, and we continuously monitor each asset's weight."
However, there is a chance that funds will be adjusted into other asset classes that are below their current target weights. While raising the target weight for domestic stocks, the National Pension Service lowered the overseas stock allocation to 34.7%, domestic bonds to 23.1%, and overseas bonds to 7.4%. As of March this year, overseas stocks accounted for 36.5% of the overall portfolio, domestic bonds 19.2%, and overseas bonds 6.9%, leaving domestic and overseas bonds below their targets.
A financial investment industry official said, "It could be that other pension funds, rather than the National Pension Service, had a bigger impact by selling stocks on the main board," adding, "Other pension funds have also hit their rebalancing limits, and with the National Pension Service set to begin selling stocks in July, they may be selling preemptively."
Some analysis says concerns that a reduction by the National Pension Service will trigger a market plunge are excessive.
Byun Jun-ho, an analyst at IBK Securities, also said, "Even if the National Pension Service's selling comes out, the main board's market capitalization has grown significantly compared with the past, so the share of selling relative to market cap may not be large," adding, "There is also the possibility of a soft approach such as daily selling limits and dispersed selling over a long period."
Meanwhile, with rebalancing set to resume next month, the National Pension Service kept the timing and size of its trades confidential in consideration of market impact.
Kim Sung-ju, chairman of the National Pension Service (NPS), said, "Unlike private capital, the National Pension Service is guided by public interest," adding, "We will closely watch market conditions and respond prudently." On the future direction of adjusting the domestic stock weight, he added, "We will decide flexibly in line with market trends."