[Exclusive] National Pension Service net sold domestic stocks this year… executed discretionary sales before rebalancing resumed

It was confirmed on the 26th that the National Pension Service (NPS) has been in a state of net selling of stocks in the domestic stock market this year. It is reported that even before rebalancing (asset reallocation) resumed in July, the NPS sold stocks, but the valuation of its holdings increased more rapidly amid the sharp market rally, causing the proportion of domestic stocks to rise.

According to sources familiar with pension fund matters, it is known that the NPS has not engaged in buying to increase its domestic stock allocation since March and April last year, when the KOSPI index fell below the 2,500 mark due to U.S. tariff shocks. After purchasing a large amount of domestic stocks at that time, there was no operational strategy to significantly increase domestic stock holdings overall.

The NPS has maintained a cumulative net selling position this year by executing discretionary sales before the resumption of domestic stock rebalancing in July. It is observed that the NPS has been disposing of stocks non-publicly at its discretion, considering market stability. It was reported that in April, after receiving dividends, it disposed of some stocks in a manner aimed at minimizing market impact.

According to trading performance data by investor type from Korea Exchange, pension funds and others net sold 9.161 trillion won worth of stocks from January to the end of September this year. The trading trends of "pension funds and others" include the NPS's trading performance. Excluding July, the first month after the NPS resumed domestic stock rebalancing (net buying of 1.33 trillion won), it was in a net selling state every month.

In months where the NPS was observed to be likely to sell domestic stocks in large quantities, pension fund and other trading was actually net buying, while all remaining months were in a net selling state.

However, since the trading performance of "pension funds and others" also includes the trading results of other pension funds, mutual aid associations, and local governments, there may be differences from the NPS's own net selling amount.

The National Pension Fund Management Committee raised the target allocation for domestic stocks from 14.4% to 14.9% on January 26 last year and postponed mechanical sales due to exceeding the allocation until the end of June. On May 28, it raised the target allocation again to 20.8%, expanded the allowable range, and reduced the maximum daily rebalancing volume. This was intended to reduce market impact from forced sales, as the proportion of domestic stocks had risen rapidly due to surging stock prices.

The valuation of the NPS's domestic stocks increased from 419.5 trillion won at the end of April to 543.2 trillion won at the end of June. During the same period, the proportion of domestic stocks also rose from 25.13% to 29.13%. At the end of July, the proportion decreased to 24.9%, largely due to falling stock prices. The structure is such that even if stocks are net sold, if the price increase rate of held stocks is faster, the proportion of domestic stocks continues to rise.

The KOSPI recorded its highest closing price ever at 9,114.55 on June 22, then fell 39.06% to 5,554.22 on October 15. It is observed that the valuation of stocks in 287 listed companies where the NPS holds more than 5% of shares decreased by 182.3963 trillion won, from 515.9293 trillion won at the end of June to 333.5330 trillion won on October 15. The sharp drop in the valuation of held stocks led to criticism that the NPS should have increased its selling speed to diversify risk. According to official NPS statistics, fund management earnings from January to July were 219.1 trillion won (return rate of 14.84%).

The People Power Party raised the possibility of political intervention in the process of raising target allocations and postponing rebalancing, demanding the disclosure of Fund Management Committee meeting minutes and a national investigation.

However, observations from the financial investment industry suggest it is uncertain whether returns could have been preserved even if domestic stocks were sold and moved to other assets. The NPS's domestic bond return rate for January to July this year was only -3.36%.

The Democratic Party of Korea countered that if large-scale selling had been forced, the market impact would have been greater, arguing that fund return rates and long-term management performance should be viewed together. Kim Seong-ju, Lee (President) of the National Pension Service, previously stated during this year's national audit that if rebalancing had been conducted according to existing standards, sales of approximately 80 billion won per day would have been necessary.