At the end of last month, as the KOSPI index surged to the 9,100 level, concerns grew about the National Pension Service's rebalancing (asset allocation readjustment) selling, but those worries have temporarily subsided amid the recent market plunge. Since the start of this month, the KOSPI has tumbled from the 8,300 level to the 6,800 level, leading observers to believe the National Pension Service's domestic stock weighting has naturally shrunk.
According to the Korea Exchange (KRX) on the 13th, the KOSPI index plunged 18.07% from the 1st (8,303.41) to the day (6,806.93). As markets crumbled recently, circuit breakers were triggered three times on the main board.
Volatility in Korea's stock market has increased, but the sharp fall in the KOSPI likely created room within the National Pension Service's target weighting for domestic stocks. At the end of May, the National Pension Service raised the combined cap of its strategic asset allocation (SAA) and tactical asset allocation (TAA) ranges for domestic stocks to as high as 28.8% through its fund management committee.
Even that was not enough. On the 22nd of last month, when the KOSPI index climbed to 9,114.55 at the close, setting a record high, the National Pension Service's domestic stock weighting was estimated to have exceeded the allowed range. Meritz Securities analyzed that, as of the 22nd of last month, the National Pension Service's domestic stock weighting likely hit a record high of 31.1%. It was estimated at 29.9% at the end of May and 29.5% at the end of June, levels that exceed both the SAA and TAA ranges.
However, with the recent plunge in the KOSPI, fears of a selling wave from the National Pension Service for rebalancing are expected to ease for the time being. The sharp drop in share prices likely reduced the valuation of domestic stocks, naturally bringing their share within the overall asset mix back inside the permitted range.
Earlier, Meritz Securities estimated that at the KOSPI 7,200 level, the National Pension Service's domestic stock weighting would be in the 26% range, within the strategic asset allocation (SAA) band. Yeom Seung-jun, an analyst at Meritz Securities, said, "The National Pension Service's mechanical selling pressure appears set to ease." With the KOSPI index barely closing at the 6,800 level on the day, the National Pension Service's current domestic stock weighting is seen to have much more room than those estimates.
In particular, the plunge in Samsung Electronics and SK hynix, which account for an overwhelming share of the National Pension Service's domestic stock portfolio, appears to have had a decisive impact.
Lee Sang-heon, Director General at iM Securities' research center, said, "Samsung Electronics and SK hynix likely account for a large share of the National Pension Service's portfolio, and the decline in these two leading stocks would have significantly reduced the domestic stock weighting." Samsung Electronics shares have fallen 23.8% so far this month, and SK hynix(000660) are down 30.38%.
Whether due to the reduced selling pressure, net selling by pension funds has also eased. The National Pension Service's flows dominate pension fund supply and demand. Pension funds, which were net sellers of 2.337 trillion won on the main board through last month, have limited net selling to 267 billion won so far this month, sharply dialing back the intensity.