NPS Moves the KOSPI: How Much Will It Need to Sell If the Index Surpasses 9,000? [Weekend Money]

Up to 74 Trillion Won in Potential Selling at KOSPI 9,000
Trading Period Extended, Pace Adjusted to Minimize Market Impact
Significant Portion of Proceeds May Shift to Domestic Bonds

As the KOSPI surpasses the 9,000 mark, market attention is once again turning to "supply and demand." While investors are busy calculating the potential for further gains as the index rises rapidly, some are quietly watching a different set of numbers—the proportion of domestic stocks held by the National Pension Service (NPS).

Shinyoung Securities recently analyzed the scale and market impact of the NPS's rebalancing (asset allocation adjustment) in its latest report. As of the end of March this year, the NPS Fund amounted to 1,526.1 trillion won. At that time, the asset allocation was as follows: overseas equities accounted for the largest share at 36.5%, domestic equities at 21.0%, domestic bonds at 19.2%, alternative investments at 16.2%, and overseas bonds at 6.9%. Since then, with the rapid rally in the domestic stock market, it is estimated that the proportion of domestic equities has risen quickly. Shinyoung Securities projected that by the end of this month, the NPS's domestic stock allocation could rise to as much as 30.8%.

At the end of last month, the NPS raised its target allocation for domestic equities through its 2027–2031 mid-term asset allocation plan. The original target allocation for domestic equities at the start of the year was 14.9%, but under the new standard, it has been raised to 20.8%. The allocation for overseas equities was reduced from 37.2% to 34.7%, domestic bonds from 24.9% to 23.1%, overseas bonds from 8.0% to 7.4%, and alternative investments from 15.0% to 14.0%.

Raising the target allocation for domestic equities is positive for the local stock market. Under the previous standard, there could have been much heavier selling pressure. However, the issue is that the proportion of domestic equities may have already exceeded the allowable range.

The NPS has allowable ranges for both strategic asset allocation (TAA) and tactical asset allocation (SAA). For domestic equities, up to 6 percentage points from TAA and 2 percentage points from SAA are allowed above the target. If both ranges are fully utilized, the maximum allowable proportion of domestic equities is 28.8%.

Shinyoung Securities estimated that if the KOSPI is above 8,175 points at the end of this month, the proportion of domestic equities would exceed this maximum allowable range. If the KOSPI remains above 9,000, the NPS's domestic stock allocation is expected to reach 30.8%. This is why concerns persist about the need for the NPS to sell some of its domestic equities to rebalance its portfolio.

The scale of the required sell-off depends on the assumptions used. If neither tactical nor strategic asset allocation ranges are utilized, the required amount of domestic stock sales at a KOSPI level of 9,000 is estimated at 74.4 trillion won. If a total of 1 percentage point from both SAA and TAA is used, the figure is 55.9 trillion won; if the full 2 percentage points are used, it drops to 37.3 trillion won.

The NPS is likely to adjust its rebalancing strategy to minimize its impact on the market. Researcher Cho Yonggu at Shinyoung Securities explained, "The rebalancing period has been extended from the original 10 days to 20 days, and the daily amount sold has also been reduced. If the upward trend in stock prices continues and the required sell-off amount grows further, the NPS may slow the pace of rebalancing or consider raising the domestic equity allocation target again toward the end of the year."

If the NPS reduces its domestic equity holdings, a significant portion of those funds could be allocated to domestic bonds. The NPS still has room to increase its domestic bond allocation. As of the end of the first quarter, the domestic bond proportion, excluding short-term funds, stood at 19.2%, and Shinyoung Securities estimates it could fall to the 15% range by the end of this month. If the NPS turns into a major buyer of domestic bonds, it could have an impact on interest rates. Researcher Cho predicted, "The NPS's buying activity will act as a somewhat positive factor for domestic bond demand in the second half of the year, limiting the upper bound on market interest rates to some extent."

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