Tension is rising in Korea's stock market as the National Pension Service resumes domestic stock rebalancing starting July 1. With the KOSPI's sharp surge pushing the domestic stock weight well above its target, concerns are mounting that a sizable amount of selling could emerge. Some also expect that, if this overlaps with foreign selling, short-term supply-demand pressure could increase.
According to the financial investment industry on the 30th, the National Pension Service will restart domestic stock rebalancing in July. The National Pension Service manages target weights by asset class under its medium- to long-term asset allocation plan, and if a particular asset weight deviates significantly from the target, it adjusts the weight by selling the excess or purchasing the shortfall.
This year, as the KOSPI rose sharply, the domestic stock weight far exceeded the target. In January, the National Pension Service held an investment management committee meeting and temporarily deferred rebalancing until the end of June, then raised the domestic stock target weight to 20.8% from 14.9%. It also widened the permissible range for strategic asset allocation (SAA) from ±3 percentage points to ±6 percentage points, and by adding tactical asset allocation (TAA), it eased operating guidelines to allow holding up to 28.8% in domestic stocks.
Daishin Securities estimated the National Pension Service's domestic stock weight at about 30% as of the 26th. Even applying only the SAA tolerance band, domestic stocks of roughly 5.7 trillion won would need to be reduced. Shinyoung Securities also recently said that if the KOSPI tops 9,000, the National Pension Service would need to sell up to 7.44 trillion won in domestic stocks for rebalancing.
However, in the securities industry, some say it is unreasonable to interpret these figures right away as a "selling bomb." The tens of trillions mentioned in the market are potential adjustment volumes calculated on the assumption that the domestic stock weight will be lowered to the management range in one go, which differs from the actual execution scale.
Cho Yong-gu, a Shinyoung Securities researcher, said, "It is a far-fetched guess to interpret that the National Pension Service will unleash a 'selling bomb' in a short period," adding, "With index corrections, the immediate burden of sell volume has eased, and preemptive moves such as net selling in the 2 trillion won range by pensions in May–June were also confirmed."
He added, "A policy to reduce daily, monthly, and annual rebalancing caps has been conveyed, but the actual execution scale and pace are undisclosed, allowing flexible responses."
In fact, the National Pension Service has been preemptively adjusting weights by net selling domestic stocks for six consecutive months recently. The Korea Exchange (KRX) tally of pension net trading is known to consist mostly of National Pension Service transactions, and the cumulative net selling over this period amounts to about 870 billion won. The most heavily net sold stock this year was Samsung Electro-Mechanics, followed by SK hynix, Samsung Electronics, and Hyundai Motor.
Kim Sung-joo, chairman of the National Pension Service, also said at a recent press briefing that the fund will proceed with rebalancing in a way that minimizes market shock.
Kim said, "The National Pension Service accounts for around 6% of our stock market, but it holds many large-cap stocks, so its impact on the market is significant," adding, "We will execute prudently to minimize the shock to the market."
In the securities industry, the National Pension Service's rebalancing is expected to act as a key supply-demand factor in Korea's stock market for the time being. However, some expect that the actual impact on the market will depend more on the execution pace and period and foreign investor flows than on the total amount sold.