NPS Weighs Massive Sell-Off Amid KOSPI Surge

Medium-Term Asset Allocation Plan Is Due on the 28th, Raising Questions Over Domestic Equity Rebalancing

National Pension Service (NPS) Investment Management building. (Photo courtesy of NPS)

With the National Pension Service’s domestic stock holdings reportedly reaching 500 trillion won ($384.61 billion), the medium-term asset allocation plan, which determines the direction of the National Pension Service’s asset allocation for the next five years, will be confirmed on May 28.

According to the financial investment industry on May 15, the Ministry of Health and Welfare held the 4th National Pension Fund Management Committee at the Government Complex Seoul on this day and gave an interim report on the status of establishing the medium-term asset allocation plan for 2027 to 2031, after which the final plan is reportedly expected to be confirmed at the fund committee on March 28. It is unusual for the fund committee to hold a meeting twice in a single month.

It is observed that time is being consumed in the process of reviewing pending issues such as the surge in the KOSPI and the exceeding of the target weight for domestic stocks.

The market’s primary interest is whether the National Pension Service will adjust its domestic stock weight.

The National Pension Service’s domestic stock valuation was 395.1 trillion won ($265.2 billion) at the end of February. At the same point, the KOSPI was 6244.13. Based on the intraday high on March 15, when the KOSPI index surpassed 8000 for the first time, the domestic stock valuation increases to 509.2 trillion won. The KOSPI rose to an intraday high of 8046.78 on this day, surpassing the 8000 mark for the first time in history. This means an estimated valuation profit of approximately 109.9 trillion won was added from domestic stocks alone since the end of February.

Applying the current domestic stock target weight of 14.9% to the fund reserves, which reportedly reached 1,800 trillion won this month, the domestic stock holdings based on the intraday high on this day are estimated to be a level approximately 90% higher than the target weight. If a maximum of 5% is applied by combining the allowable ranges for strategic asset allocation and tactical asset allocation, the upper limit of the domestic stock weight increases to 19.9%. Even in this case, the excess amount compared to the estimated valuation reaches 151 trillion won. In principle, the National Pension Service’s excess weight corresponds to the volume subject to mechanical selling.

Minister of Health and Welfare Jeong Eun-kyeong said in her opening remarks at the fund committee on this day, “The medium-term asset allocation is an important decision-making process that determines the long-term profitability and stability of the fund,” and requested, “Please receive the interim report on the establishment status of the medium-term asset allocation and provide in-depth discussions and opinions considering financial market trends, future prospects, and the profitability and stability of the fund.”

Regarding the financial market situation on this day, Minister Jeong said, “Recently, the KOSPI index has been breaking its all-time high and continuing its upward trend centered on semiconductors, and in the global stock market, factors such as expectations for an end to the war and the expansion of artificial intelligence (AI) demand are leading the stock price increase through the upward trend of the IT sector.”

However, she stated, “The situation in the Middle East has not stabilized, and the global financial market has various risk factors coexisting, such as the recent expansion of sales in the private credit market,” adding, “It is a situation where liquidity is difficult to predict.”

Yoon Young-sil