SEOUL, May 29 (AJP) — South Korea's National Pension Service (NPS) posted a solid 4.42 percent return in the first quarter thanks to stellar performance of local shares despite the outbreak of the U.S.-Iran war.
NPS, one of the world's largest institutional investors with assets under management swelling to 1,526 trillion won ($1.14 trillion), said Friday its assets increased by 68 trillion won from the end of last year, with domestic stocks returning 21.67 percent and accounting for the bulk of investment gains.
The performance report came less than 24 hours after the National Pension Fund Management Committee, chaired by Health and Welfare Minister Jeong Eun-kyeong, approved a new five-year asset allocation plan raising the target weighting of domestic equities to 20.8 percent from 14.9 percent.
At Thursday's meeting, the Fund Management Committee also approved a temporary expansion on domestic-equity strategic asset allocation (SAA) tolerance band. The fund's local exposure is said to have neared 30 percent despite the cap based on the tolerance band.
Although the upper and lower limits are not publicly disclosed, the hike of the official ceiling would ease the rebalancing pressure while the stock market remains on bullish run. At recent market highs, analysts estimated that as much as 177 trillion won worth of domestic equities could have faced rebalancing pressure under the previous allocation framework.
"Recent domestic stock markets have continued their upward momentum, with the KOSPI closing above 8,000 for the first time," Jeong said at Thursday's meeting. "We will seek to enhance the fund's long-term profitability and stability while also taking into account its impact on financial markets."
According to the NPS, domestic equities generated the strongest returns among major asset classes in the January-March period, rising 21.67 percent. Overseas stocks slipped 0.11 percent, while domestic bonds lost 2.03 percent. Overseas bonds gained 4.98 percent and alternative investments returned 5.27 percent.
The fund said the outbreak of the U.S.-Iran conflict on Feb. 28 weakened investor sentiment and interrupted a powerful rally in semiconductor-related shares. Nevertheless, domestic equities maintained double-digit gains and remained the primary driver of overall portfolio performance.
Overseas stocks were weighed down by growing uncertainty surrounding global markets, while rising oil prices and inflation concerns pushed bond yields higher, hurting domestic fixed-income holdings. Overseas bonds benefited from gains in the won-dollar exchange rate.
NPS Chairman Kim Sung-joo said first-quarter returns had retreated from 10.26 percent recorded at the end of February as the Middle East conflict rattled financial markets, but have since recovered.
"The fund has regained momentum and continues to deliver solid results," Kim said. "As a long-term investor responsible for the retirement security of the Korean people, we will maintain disciplined investment principles and rigorous risk management regardless of market conditions."
The stronger-than-expected performance provides fresh context for Thursday's politically sensitive decision to increase the pension fund's domestic stock allocation.
Under the 2027~2031 medium-term asset allocation plan approved by the committee, domestic equities will account for 20.8 percent of the portfolio, while overseas equities will represent 34.7 percent. Domestic bonds will make up 23.1 percent, overseas bonds 7.4 percent and alternative investments 14.0 percent.
As of March, local stocks accounted for just over 21 percent of assets and generated more than one-fifth in returns during the quarter.
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