Will the '255 Trillion Sell-Off Bomb' Be Defused? The Fate of the KOSPI Hinges on the National Pension Service's Decision

NPS Rebalancing D-Day: The Fate of "Man-SPI" Hangs in the Balance

Fund Committee to Discuss Five-Year Asset Allocation Plan

Managing Soaring Domestic Equity Ratio Is Key

Expansion Needed, but Calls for Caution Remain

The National Pension Service (NPS), the largest institutional investor in the Korean stock market, is set to discuss adjustments to its domestic equity allocation. As the KOSPI has soared to record highs, the NPS's domestic equity proportion has nearly doubled its original target, making a revision to its asset allocation plan inevitable. While some argue that the structural changes in the stock market warrant a partial increase in domestic equity exposure, others advocate caution, insisting that now is the time to reduce exposure during the current bull market.

According to the financial investment industry on May 28, the Fund Management Committee of the National Pension Service will convene its fifth meeting this afternoon to review and decide on the medium-term asset allocation plan for 2027–2031. As this meeting will set the target allocations for each asset class over the next five years, it is considered the most important committee session of the year.

The market’s primary focus is undoubtedly on the NPS’s domestic equity allocation. With the KOSPI surpassing the 8,000 mark, the NPS’s equity proportion is estimated to have approached 30% by the end of this month. This is nearly twice as high as the committee’s target of 14.9% set at the end of January. The NPS’s fund assets have reportedly already exceeded 1,700 trillion won. If the NPS were to reduce its domestic equity allocation to the original target, this would result in at least 255 trillion won worth of stocks being sold.

For this reason, it is expected that the NPS will take a somewhat conservative approach to adjusting its allocations. As the government is encouraging a shift in national assets from real estate to the capital market, the NPS cannot avoid considering the potential impact on the domestic stock market. In a recently published report, Beomgi Son, an economist at Barclays, stated, "Given the semiconductor export boom and the expectation that this boom will continue for the next two to three years, the NPS is likely to prefer maintaining its domestic equity exposure. If the NPS proceeds with rebalancing, it would mean large-scale selling of domestic stocks, which would be negative for retail and individual investors and thus become a politically sensitive issue."

Some in the industry argue that, regardless of these considerations, there is a need to increase the domestic equity allocation. They believe that, given the structural improvements in Korea’s capital market, the current rally is not a one-off surge. With corporate governance reforms improving market fundamentals and an ongoing boom in AI-driven semiconductors strengthening earnings, they contend that there is no need to mechanically adjust allocations.

However, asset management experts believe that now is a time for caution. Even if the NPS decides to raise its target for domestic equities, it would be burdensome to immediately accept the current allocation, which is nearing 30%. Instead, they suggest that while there may be some expansion, it is prudent to sell and incrementally rebalance during this period of market strength. An executive from a domestic public pension fund and mutual aid association noted, "When the market is weak, the burden of selling increases due to public opinion, narrowing our room for maneuver. If the 30% allocation of the entire fund is exposed to a market correction, it would directly impact the retirement savings of the nation’s people," expressing concern.

This content was produced with the assistance of AI translation services.