NPS: "'74 Trillion Won Sell-Off Bomb' Is Absurd"... Easing Fears Over Domestic Equity Rebalancing

Chairman Sungjoo Kim: "Rebalancing Is Adjustment, Not a Bomb"

"We Consider Multiple Factors Including Stock Prices, Interest Rates, and Exchange Rates"

"The Mission of the NPS Is the People's Interests and Retirement Wellbeing"

As the National Pension Service (NPS) begins rebalancing its domestic equity portfolio, concerns over a potential "sell-off bomb" have been spreading both inside and outside the stock market. In response, Sungju Kim, Chairman of the National Pension Service, has personally stepped in to address these fears. This comes amid speculation that, due to the recent surge in the KOSPI index, the NPS's domestic equity allocation has exceeded its target, potentially leading to tens of trillions of won in sell orders flooding the market at once starting in July.

The NPS emphasizes that rebalancing is not a matter of short-term large-scale selling, but rather a gradual adjustment of asset allocations in line with long-term asset management principles. The institution also clarified that the market's estimate of tens of trillions of won in sell orders is not the actual amount to be sold in July, but rather a "potential adjustment volume" calculated based on certain assumptions.

Chairman Sungju Kim: "'74 trillion' figure is wrong... The possibility of a sell-off bomb is zero"

Screenshot of Sungjoo Kim, Chairman of the National Pension Service's Facebook.

On July 1, Sungju Kim, Chairman of the National Pension Service, strongly refuted the recent "74 trillion won sell-off bomb" theory circulating in the market via his official social media account. Kim stated, "First of all, the '74 trillion' figure is wrong. I don't know how it was calculated, but it's a ridiculous number. I'm curious since when analysts have started acting like fortune tellers."

The NPS resumed its domestic equity rebalancing from July, ending a temporary suspension that had been in place since January this year. The fund has now returned to managing allocations for each asset class. According to explanatory materials distributed by the NPS, the target allocation for domestic equities will remain at 20.8% through 2027. Any further adjustments will be discussed again during next year's mid-term asset allocation review.

However, as a rule, the NPS does not disclose the specific timing, scale, or selection of stocks it plans to sell. This is because advance notice of trading plans by a major pension fund could lead to front-running or herd trading, potentially distorting the market and adversely affecting fund operations.

Chairman Kim cautioned against interpreting rebalancing as a "sell-off bomb." He stated, "Even if the NPS begins rebalancing, the possibility of a 'bomb' is zero. In May, the fund's committee revised the rebalancing rules to ensure the process would be carried out gradually over a long period."

"Rebalancing is not a bomb, but an adjustment"... The key is speed, not total volume

Rebalancing is an asset management procedure designed to restore portfolio allocations to their targets when the price movement of a particular asset causes them to diverge. If stock prices rise significantly, the valuation of equities increases and their proportion within the total fund also goes up. In such cases, the fund reduces the overweight portion and increases allocations to underweight assets, thereby managing risk.

This is not about taking short-term profits or making directional market bets, but about managing risk according to long-term investment principles. The much-discussed estimates of tens of trillions of won in potential sales are simply hypothetical adjustment volumes calculated under the assumption of lowering the domestic equity allocation to a specific level. It is difficult to interpret these figures as the actual amount to be sold in July.

Chairman Kim compared rebalancing to a scale or a seesaw. He said, "Literally, 'rebalancing' is an adjustment. If you think of a scale or a seesaw, if one side becomes too heavy or too light, you need to remove a little from the heavy side or add a little to the light side to maintain balance."

He added, "If you remove too much just because it is heavy, it will become misaligned again, so you have to do it gradually and precisely. That is why rebalancing cannot result in large-scale selling in a short period."

The NPS also emphasized that rebalancing decisions are not made based solely on the level of the KOSPI index. Chairman Kim explained, "We do not initiate rebalancing simply because the KOSPI index has risen. Decisions are made by considering not only stock prices but also returns on bonds and alternative assets, stock volatility, interest rates, exchange rates, and a variety of other factors." He added, "Details cannot be disclosed in order to prevent entities from exploiting our strategy for personal gain."

Long-term selling pressure remains a variable... "Beware of excessive fear-mongering"

National Pension Service Fund Management Headquarters

Of course, this does not mean that rebalancing places no burden on the stock market. The NPS is a major long-term investor with significant influence in the domestic stock market. If pension fund selling continues over a prolonged period during the domestic equity rebalancing process, and if this is compounded by foreign investor outflows, exchange rate volatility, or interest rate uncertainty, it could dampen the upward momentum of the index. In particular, large-cap stocks and sectors that have experienced rapid price increases may be more sensitive to supply and demand pressures.

However, making definitive statements such as "tens of trillions of won will be sold within a few days" could itself pose a risk. This is because it is difficult for outsiders to precisely estimate the actual scale and timing of the NPS's sales. While some trends can be inferred from pension fund flow statistics, these cannot be taken as concrete trading plans for the NPS.

Ultimately, in the July rebalancing phase, the market's focus should not be on sensational terms like "sell-off bomb," but rather on actual supply and demand data and the pace of execution. While there is a possibility that the NPS will continue selling domestic stocks, the likelihood that this will occur all at once at a specific point in time is low, according to the NPS. Investors should monitor not only the net selling volume by pension funds, but also foreign investor flows, large-cap stock trends, and changes in the bond and foreign exchange markets.

Chairman Kim reiterated that the NPS is not an investor seeking short-term trading gains, but a public pension fund that manages the nation's retirement assets for the long term. He stated, "The NPS does not immediately sell when prices rise to realize profits or buy immediately when prices fall. As a 'universal owner' committed to the growth of Korea's economy, industry, and companies, our mission is to serve the interests and happiness of the people in their retirement."

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