The National Pension Service (NPS), South Korea’s largest institutional investor, has room to offload additional 16 trillion won ($14 billion) in the Kospi to taper off its dominance over the local bourse even if it has to endure retail and political scorns.

The country’s major public institutional investors including NPS have extended their selling streak in the local stock market to record 42 trading sessions last Friday. Their net sale in the Kospi amounted to 12.9 trillion won, or more than half of the total net sales made so far this year.

The selling spree has been met with bitterness from retailers, who have net bought 30.7 trillion won over the same period to defend the 3,000 mark in the Kospi.

The public funds inevitably would have to keep short position, according to their long-term outline to rebalance investment portfolio.

NPS, commanding more than 80 percent of institutional stock investment, needs to lower its domestic stock holdings to 16.8 percent by the end of this year. The 16.8 percent target means the pension fund cannot hold more than 150.7 trillion won worth.

Since a range of 5 percentage points is tolerated, the fund must keep local stock share 11.8-21.8 percent this year. Although capped at 17.3 percent, local shares made up 21.8 percent of NPS’s investment last year.

NPS sold off 10 trillion won worth in the first two months but it would have to unload another 16 trillion won worth by the end of this year, presuming the Kospi hovers around 3,000.

NPS has been readjusting its operation to rebalance its equity portfolio to lessen its outsized influence over the domestic market with 8.9 percent weight over Kospi value of 1,980 trillion, which makes up a mere 1.2 percent of global stock market cap.

“The fund operator has to manage investment within the target range because it would be held responsible for any losses,” noted an asset manager.

Health and Welfare Minister Kwon Deok-cheol last week said NPS will review the issue of rebalancing stock investment with Kospi in the range between 2,000 and 3,000. NPS’s top decision-making body will hold its fund operation meeting in late March. It adjusts asset allocation every year.

Its trajectory shows that NPS earned more from overseas than home.

The cumulative rate of returns from 1998 to 2020 averaged at 10.23 percent from overseas stock investment and 8.99 percent from home investment. Last year was an exception with domestic stocks yielding 34.89 percent versus 10.76 percent returned from overseas stocks.

NPS has been gradually lowering the share of domestics stocks within its securities investment portfolio – 17.3 percent in 2020, 16.8 percent in 2021, and 15.0 percent in 2025. Meanwhile, it aims to increase the portion of overseas stocks to 25.1 percent in 2021 and 35.0 percent in 2025.

The Teachers’ Pension, another major institutional investor with 20 trillion won under management, also acts on the similar guideline. It aims to reduce the portion of domestic stocks within its investment basket to 14.5 percent in 2025 from this year’s 18.6 percent.

By Moon Ji-woong, Moon Ga-young and Cho Jeehyun

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]