NPS takes heat from bearish stock market

South Korea’s National Pension Service, the third-largest pension fund in the world, has taken over 5 percent in losses from domestic stocks from January to August, hit by the ongoing bearish trend in the local stock market this year. 

The public pension fund, overseeing 650.9 billion won ($571.8 million) in assets as of end-August, yielded 2.3 percent return from its investments, according to its disclosure Tuesday. The NPS invests in various asset classes including equities and fixed-income assets at home and abroad, as well as alternatives and short-term assets.

The figure comes in comparison to an annual return in 2017 of 7.3 percent and an average yearly gain at 6 percent since 1988, when the national pension system was put in place.

Losses from the domestic stock market contributed to the lackluster performance this year. As of end-August, assets in domestic stocks, taking up 19 percent of the entire investment portfolio, led to a 5.1 percent loss from January. The benchmark index Kospi fell 5.9 percent over the cited period.

The figure shows a significant retraction from last year. Domestic equities in its portfolio yielded a 25.9 percent gain in 2017, riding a surge in Kospi by 21.8 percent then.

Returns from global equities, accounting for another 19 percent in NPS’ portfolio, also shrank to 7.6 percent until August in 2018, compared to 10.6 percent in 2017.

By contrast, fixed-income assets and alternative instruments have yielded solid returns. Domestic bonds, which account for nearly half of the NPS portfolio, gained 2.9 percent on the back of the low key rate here that has translated into the rising value of domestic bonds, the pension fund added. Alternative assets at home and abroad managed by NPS yielded a 5.2 percent gain partly thanks to strengthening dollar.

The news came amid calls for local pension funds, including NPS, to prop up the stock market through bargain-hunting, as the market has been in a recent free fall, hitting a 22-month low.

“When stock markets fluctuated in the past, pension funds and other institutional investors here have buttressed the market,” Kwon Yong-won, head of the Korea Financial Investment Association, told reporters after a contingency meeting with representatives of financial investment industry on Monday. “We cannot compel pension funds (to bargain-hunt shares) but we can at least discuss it.”

“We need to say now is the time for pension funds to invest in stocks. We say it and pension funds will make a decision,” he added.

But Lee Su-cheol, head of NPS’ investment strategy, cast doubt on any favorable effect of NPS’ bargain-hunting on the market in the long run, saying the pension fund is rather moving to “diversify portfolio by lowering weight of domestic assets,” during a panel session at the National Assembly on Wednesday.

By Son Ji-hyoung 
(consnow@heraldcorp.com)