KOSPI Plunges in July, National Pension Fund Shrinks by KRW 182 Trillion in Just One Month

70% of the Decline Attributable to Domestic Stocks
Total Return Drops from 27.22% to 14.84%

As the domestic stock market plummeted in July, the size of the National Pension Fund shrank by 181.4 trillion won in just one month. Of this decrease, 124.6 trillion won—or about 70%—was attributed to losses in domestic equities.

According to the National Pension Service Fund Management Headquarters on September 30, the year-to-date return on domestic equities stood at 60.11% as of the end of July, a drop of more than 47 percentage points from 107.37% at the end of June. Although the June figure had already surpassed last year's full-year return of 82.44%, just one month later, returns fell back to levels similar to the end of April (59.71%).

Fund Shrinks by 182 Trillion Won... Domestic Equities Account for 70%

The valuation of domestic equities declined from 543.2 trillion won at the end of June to 418.6 trillion won at the end of July, while the total fund size dropped from 1,865.6 trillion won to 1,684.2 trillion won. Approximately 69% of the decline in the fund was attributable to domestic equities. As domestic equities—which made up 29.1% of fund assets as of the end of June—tumbled, the entire fund was shaken. The overall fund return also dropped sharply, from 27.22% to 14.84%, a decrease of more than 12 percentage points. Nonetheless, the valuation of domestic equities was still 154.8 trillion won higher than at the end of last year (263.7 trillion won).

Other asset classes also saw lower returns, but the decline was not as steep as in domestic equities. Returns on overseas equities fell from 17.81% to 10.72%, overseas bonds from 9.22% to 0.72%, and alternative investments from 9.60% to 4.09%. Outperformance against market benchmarks also shrank: domestic equities’ excess return over the benchmark decreased from 4.95 percentage points at the end of June to 2.09 percentage points at the end of July, less than half the previous level.

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The National Pension Service stated, “Although the domestic stock market declined compared to the previous month, it has still delivered a strong year-to-date return, supporting the overall fund performance.” The fund attributed the high returns in domestic equities to solid earnings centered around semiconductors, despite uncertainties related to the Middle East conflict and concerns over the sustainability of artificial intelligence (AI) investments.

In fact, the KOSPI’s year-to-date growth rate was 56.51%, outpaced by the National Pension Service’s domestic equity return of 60.11%. Regarding overseas equities, the National Pension Service explained that strong earnings primarily among technology stocks led to gains.

Conversely, domestic bonds posted a return of -3.36%, reflecting a decline in valuation as the yield on three-year government bonds climbed 80.9 basis points (1bp = 0.01 percentage point) from the start of the year. For alternative investments, the fund said, “Figures reflect interest and dividend income, foreign exchange gains and losses caused by exchange rate fluctuations, and the estimated fair value at the time of asset acquisition.”

Domestic Equity Allocation Remains High at 24.9%... Rebalancing in Focus

The proportion of domestic equities in the portfolio dropped from 29.1% at the end of June to 24.9% at the end of July. Given that the reduction in valuation closely matched the scale of capital losses due to falling stock prices, it appears the decline resulted more from price drops than active selling. Previously, the National Pension Service benefited from a rally in the KOSPI by postponing rebalancing, but has absorbed the full extent of the decline during this adjustment phase.

As of the end of July, the asset allocation was 37.0% overseas equities, 24.9% domestic equities, 16.8% domestic bonds, 14.8% alternative investments, and 6.1% overseas bonds. The National Pension Service’s target allocation for domestic equities stands at 14.9%, which is still 5 percentage points higher than the upper limit of the deviation band (±5 percentage points), set at 19.9%. While the rebalancing moratorium concluded at the end of June, there was no mention of this in the latest disclosures. Depending on market trends, the need for further portfolio adjustments may grow stronger.

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