“After boosting its stock allocation to 64%” ... Did the NPS fail to serve as a stock-market safety net despite 182 trillion won evaporating? [fn Market Watch]

[Financial News] The sharp decline in South Korea’s stock market has cut the value of the National Pension Service’s major stock holdings by more than 182 trillion won in just over three months. Samsung Electronics and SK hynix alone account for 131 trillion won of the loss. With the NPS having reduced its bond holdings and increased its allocation to domestic and foreign equities to 64.5%, while its domestic equity allocation has also reached 29.1%, concerns have emerged that it may have limited capacity to make additional purchases and serve as a “safety net” for the market during a sharp downturn.
According to financial data provider FnGuide on the 18th, the NPS’s stock holdings in 287 listed companies, for which it disclosed stakes of 5% or more, were estimated to be worth 333.533 trillion won as of the 15th. That was down 182.3963 trillion won, or 35.3%, in about three and a half months from 515.9293 trillion won at the end of June.
The decline in value was concentrated in large-cap semiconductor stocks. SK hynix recorded the biggest drop, at 74.2261 trillion won. Samsung Electronics’ holdings fell by 56.871 trillion won. Combined, the losses in the two stocks totaled 131.0971 trillion won, or 71.8% of the overall decline.
Samsung Electronics’ share price plunged from 334,000 won at the end of June to 210,000 won on the 15th of this month, while SK hynix’s fell from 2.65 million won to 1.262 million won. As of the 15th, the NPS held a 7.84% stake in Samsung Electronics and a 7.32% stake in SK hynix.
The NPS’s asset allocation is noteworthy. According to its fund management headquarters, domestic equities accounted for 29.1% and foreign equities for 35.4% of its 1,864.8 trillion won in financial-sector assets at the end of June this year, bringing its total equity allocation to 64.5%. By contrast, domestic bonds accounted for 15.4% and foreign bonds for 5.9%, leaving its total bond allocation at just 21.3%. The domestic equity allocation was 8.3 percentage points above the year-end target of 20.8%.
The shift is even clearer in comparison with the past. At the end of 2010, equities accounted for 23.1% of the NPS’s portfolio, about one-third of its bond allocation (70.7%). By 2020, the shares were similar, at 44.3% for equities and 44.5% for bonds. This year, however, the equity allocation has grown to about three times the bond allocation. In effect, the center of the NPS’s asset allocation has shifted entirely from bonds to equities in 16 years.
The NPS’s reconfigured, equity-centered asset allocation is seen as a factor that could constrain its ability to stabilize the market during a sharp downturn. The NPS is a key institutional investor in South Korea’s stock market and can absorb large-scale selling by foreign investors. But the sharp rise in large-cap semiconductor stocks in the first half of the year significantly increased its domestic equity allocation, raising concerns that its capacity for additional purchases may be limited. The increased equity allocation boosted returns in a rising market, but has put the NPS in the paradoxical position of finding it harder to serve as a market “safety net” during a sharp downturn.
The declines in value spread across semiconductor-related stocks. SK Square’s holdings fell by 10.8698 trillion won, while Samsung Electro-Mechanics’ fell by 7.5914 trillion won. The value of holdings declined in 176 of the 287 stocks.
[email protected] Kim Hyun-jung Reporter