NPS delays decision on domestic stock ratio

South Korea‘s public pension fund, the National Pension Service, delayed a decision on whether or not to increase the proportion of domestic stock holdings, amid mounting criticism over the fund’s selling streak.

NPS investment Management, the fund’s highest decision-making body, held a meeting Friday to discuss the matter, but failed to reach an agreement on whether or not to raise the proportion of strategic asset distribution limit from the current 2 percentage points to 3 or 3.5 percentage points.

The strategic asset allocation limit allows pension managers to hold positions without selling assets even if the proportion deviates from its preset target ratio due to changes in asset prices. This year’s target is 16.8 percent.

Under the current rules that allow for a fluctuation of 2 percentage points, the NPS can hold up to 18.8 percent of domestic stocks in their total assets. If the NPS Investment Management decides to raise it to 3.5 percentage points, NPS’s domestic stock exposure could reach up to 20.3 percent.

According to local media reports, the NPS is likely to make a decision during the next meeting to be held next month.

The NPS has faced severe criticism from stock investors as it sold domestic stocks for 51 consecutive business days from Dec. 24 to March 12. Investors insist the NPS’ selling position is partly responsible for tepid stock markets here this year. After hitting a record high of 3,208.99 points on Jan. 25 but having lost earlier gains, the country’s primary Kosipi lingers around the 3,000-point threshold.

The NPS’ selling streak was partly due to the increased value of stocks held by the NPS backed by a bullish stock market. As of the end of 2020, the proportion of domestic stocks accounted for 21.2 percent of the total assets, which far exceeded the year-end goal of 17.3 percent, with wiggle room of 2 percentage points.

The NPS has lowered the domestic stock ratio goal from 20 percent in 2016 to 16.8 percent in 2021 in an effort to lower its influence on the stock markets.
 
By Park Ga-young (gypark@heraldcorp.com)