This year, even as an unprecedented crash continued with a total of nine circuit breakers triggered on the main board, it turned out that pension funds, dubbed the "stock market relief pitcher," stepped in to net buy only four times. That stood in sharp contrast to the past, when the National Pension Service, which accounts for the vast majority of pension fund flows, defended share prices with large net purchases whenever circuit breakers were triggered.
In the financial investment industry, some noted that the National Pension Service, which missed the timing for asset allocation rebalancing during the first-half market upswing, was effectively "tied hand and foot" in this panic and failed to respond in time.
According to the Korea Exchange (KRX) on the 29th, the KOSPI index plunged more than 8% intraday, triggering a circuit breaker on the main board. On the day before, the 28th, the KOSPI fell 10.84%, also triggering a circuit breaker, and this is the first time it has gone off for two consecutive trading days.
On the day, pension funds, including the National Pension Service's flows, were net buyers of 338 billion won. Pension funds were also net buyers of 116 billion won on the main board the previous day. This is the first time that pension funds have continued net purchases of more than 100 billion won on days when circuit breakers were triggered.
Although a total of nine circuit breakers were triggered this year, pension funds, including the National Pension Service, moved to net buy only four times. Even in March, when the KOSPI index plunged and circuit breakers were tripped twice amid the aftermath of war between the United States and Iran, pension funds instead recorded total net sales of 175 billion won.
Thereafter, on June 23 (-294 billion won), June 26 (-48 billion won), and July 13 (-66 billion won), when circuit breakers were triggered, they continued a net selling stance. The days they responded with net buying totaled only four trading sessions—June 8 (48 billion won), July 7 (29 billion won), the 28th, and the day in question.
The view is that pension funds belatedly turned to net buying this month because, after the deferral of the National Pension Service's asset allocation rebalancing ended at the end of last month, the sharp drop in the KOSPI index created room again under the cap for domestic equities at the fund.
This year's pattern stands out compared with past cases when circuit breakers were triggered. Excluding this year, a review of the six prior instances shows that pension funds without exception recorded net buying on each of those trading days. In particular, during crash periods in the 2020s, they propped up the downside with powerful net purchases in the 200 billion to 500 billion won range per day.
In the financial investment industry, criticism has persisted that "it is regrettable the National Pension Service failed to play the role of breakwater in this year's downturn." Pension fund flows serve as a temporary buffer when the market plunges. Under asset allocation rebalancing rules that move mechanically to meet set weights, low-priced buying flows in when the index collapses.
However, the analysis is that this system was difficult to operate properly this year. Early this year, the National Pension Fund Management Committee temporarily deferred asset allocation rebalancing measures until the end of June, effectively leaving the fund in a "tied hand and foot" state in the market, unable to buy or sell domestic stocks.
The basic principle of asset allocation is to buy stocks low and sell high, but with sell-side rebalancing deferred during the first-half rally this year, buying capacity in the downturn was also effectively shut off.
An official at a financial investment firm said, "As the National Pension Service was unable to carry out sell-side rebalancing this year, it also appears to have been hard to execute additional buy-side rebalancing," adding, "By missing the right response timing in the first half, it likely suffered significant mark-to-market losses in this crash."
The explanation is that while the principle is to buy stocks low and sell high, with rebalancing deferred this year and selling difficult during the market's uptrend, buying in the downturn was in effect also difficult.
Meanwhile, as the domestic market surged this year, the National Pension Service raised its target weight for domestic equities to 20.8% from 14.9% and expanded the upper bound to 28.8% by applying strategic and tactical allocation ranges.
In the securities industry, there was a view that when the KOSPI index was around 7,200 points, the National Pension Service's domestic equity weight was about 26.3%, and given that it has since fallen by roughly 1,500 points, the domestic equity weight is estimated to have moved back within the allowed range.