"We will block the National Pension Service's sell-off bomb" ... DPK moves to legislate adjustments to rebalancing target weights and temporary suspensions

[Financial News] As the National Pension Service (NPS) resumes rebalancing its domestic stock holdings, concerns are growing over a possible "sell-off bomb" worth tens of trillions of won. Against that backdrop, the Democratic Party of Korea (DPK) is reportedly moving to establish a legal basis that would allow it to adjust the target share of domestic stocks or temporarily suspend asset sales depending on market conditions.
The move is aimed at preventing the NPS from mechanically dumping large volumes of stocks during periods of sharp market volatility. If the bill passes, it is expected to ease market anxiety to some extent by providing a clear legal basis for rebalancing adjustments that had previously depended on the judgment of the National Pension Fund Operation Committee.
The Korea Herald Business reported on the 6th that Rep. Park Sun-won of the DPK plans to soon introduce a revision to the National Pension Act containing these measures.
The core of the revision is to allow the National Pension Fund Operation Committee to adjust target weights by asset class or temporarily suspend asset sales and purchases after deliberation, if circumstances specified by presidential decree arise, such as sharp fluctuations in the financial or foreign exchange markets.
However, the bill limits such adjustments and suspensions to cases that do not undermine the long-term stability and profitability of the NPS.
It also requires the Minister of Health and Welfare to report without delay to the relevant standing committee of the National Assembly whenever a target-weight adjustment or temporary suspension is implemented, creating an ex post oversight mechanism.
The legislation reflects the growing burden on the NPS from its rebalancing needs amid the recent surge in the domestic stock market.
Brokerage industry observers have pointed out that the rapid rise in the KOSPI, which jumped from the 4,000 level at the start of the year to above 9,000 recently, has made it difficult to apply the existing fund management plan as it stands.
The NPS sets target weights for asset classes such as domestic and overseas stocks and bonds through a five-year medium-term asset allocation plan and an annual fund management plan.
At the beginning of this year, the domestic stock target weight under the fund management plan was 14.9%. Even when the actual share exceeded that level, the NPS delayed selling. It later revised its medium-term asset allocation plan in May, sharply raising the domestic stock target weight to 20.8% by 2027.
By combining the allowable ranges for Strategic Asset Allocation (SAA) and Tactical Asset Allocation (TAA), the NPS can hold up to 28.8% in domestic stocks. SAA refers to the tolerance band for market price fluctuations, while TAA is the investment weight that can be adjusted based on management judgment. If both ranges are exceeded, the portfolio must, in principle, be adjusted through rebalancing.
As the domestic stock share is still estimated to be above the target, concerns persist that large-scale selling by the NPS to meet its target weight could increase stock market volatility.
The government, however, is drawing a line against the so-called "NPS sell-off bomb" theory.
In a Facebook post on the 2nd, Kim Sung-ju, chair of the National Pension Service, said, "Even if the NPS enters rebalancing, the chance of it becoming a 'bomb' is zero," adding, "Rebalancing does not mean massive selling over a short period."
On the same day, Minister of Health and Welfare Jeong Eun-kyeong said, "Even if rebalancing takes place in the future, we will closely monitor the process so that market impact can be minimized."
y27k@fnnews.com Seo Yoon-kyung Reporter