SEOUL, July 01 (AJP) - The head of South Korea’s National Pension Service pushed back Wednesday against speculation that the fund could trigger a massive selloff in domestic shares, saying fears of a so-called 74 trillion won “selling bomb” were exaggerated.
Kim Sung-joo, chairman of the National Pension Service, said in a Facebook post that the 74 trillion won figure was “wrong” and “absurd.”
“Even if the National Pension Service begins rebalancing, the chance of it becoming a ‘bomb’ is zero,” Kim wrote. “Rebalancing by the National Pension Service is nothing new.”
The comments came as investors watched whether the pension fund would resume selling Korean shares after a temporary waiver on domestic equity rebalancing expired at the end of June.
The issue has become a focus for the market after a sharp rally in Korean stocks lifted the value of the fund’s domestic equity holdings, raising speculation that the NPS may need to reduce exposure to bring its portfolio closer to target levels.
Some market estimates had suggested the fund could sell tens of trillions of won worth of domestic shares, turning pension fund flows into one of the biggest variables for Korean equities in the second half of the year.
The rebalancing in question follows a January decision by the National Pension Fund Management Committee to temporarily delay domestic equity rebalancing, citing high market volatility.
In May, the committee raised this year’s target allocation for domestic stocks to 20.8 percent from 14.9 percent. It also adjusted related rules to reduce market impact, including by widening the strategic asset allocation band and lowering the maximum daily rebalancing amount.
Kim said the May changes were designed to ensure that rebalancing would be carried out gradually over an extended period, rather than through a large short-term sale.
Closing market data also showed little sign of an institution-led selling wave on the first day after the waiver expired.
On the KOSPI, institutional investors as a group sold a net 70.5 billion won, far smaller than the 1.7029 trillion won sold by foreign investors. Retail investors bought a net 1.7397 trillion won.
The investor data, however, cover institutions as a whole and do not separately identify trading by the NPS.
Kim described rebalancing as a process of adjustment, not abrupt liquidation. He said a portfolio that tilts too far in one direction must be brought back into balance carefully and gradually.
The NPS does not decide whether to rebalance based simply on the level of the KOSPI, Kim said. The fund also considers returns on other assets, including bonds and alternatives, as well as stock volatility, interest rates and exchange rates.
He said the fund could not disclose the details of its rebalancing strategy because doing so could allow market participants to take advantage of its trading plans.
Kim also stressed that the NPS is not an institution that sells immediately when stocks rise or buys immediately when they fall.
“The mission of the National Pension Service is to work for the benefit and retirement security of the people as a universal owner that grows together with Korea’s economy, industries and companies,” he said.
He urged the public not to be swayed by what he called fearmongering over a “selling bomb” or by reports that amplify market anxiety for clicks.
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