Relief Pitcher Pension Funds Struggle to Defend Against Foreign Investors

[Asia Economy Reporter Koh Hyung-kwang] As the stock market has been greatly shaken by the pandemic of the novel coronavirus infection (COVID-19), domestic pension funds including the National Pension Service have begun to actively 'buy'. However, the strong selling pressure from foreigners appears insufficient to defend the index.

According to the Korea Exchange on the 20th, since the first confirmed COVID-19 case in Korea on January 20th until the day before, pension funds have net purchased stocks worth 2.697 trillion won in the KOSPI market over about two months.

In particular, pension funds bought net 573 billion won and 379.7 billion won worth of stocks on the 13th, when both the circuit breaker and sidecar were triggered due to the domestic stock market crash, and the day before, respectively, purchasing a total of 2.2373 trillion won worth of stocks just this month. Considering that net purchases were only 14.8 billion won in January and 263.9 billion won in February, pension funds have started full-scale buying this month as the stock market decline deepened.

Pension funds have played a savior role whenever the stock market was in crisis. They were also the main force defending against further declines in August last year when the KOSPI fell to the low 1900s due to the US-China trade war and Korea-Japan economic dispute. From early August to the end of last year, pension funds bought a total of 6.48 trillion won worth of stocks in the KOSPI, leading the index's rebound. Meanwhile, foreigners and individuals sold stocks worth 6.24 trillion won and 6.25 trillion won, respectively, during the same period.

This year, the selling pressure from foreigners is so strong that pension funds are limited in reducing the index's decline. Foreigners have sold stocks worth 9.5 trillion won just this month, with a total net sale of 12.51 trillion won this year. Kim Dong-wan, a researcher at Eugene Investment & Securities, said, "Foreigners' net selling of KOSPI stocks is the largest since 2000, making it insufficient for pension funds alone to defend stock prices."

The securities industry expects pension funds to continue their buying trend for the time being. The National Pension Service, which accounts for most of the pension funds, announced that it would maintain about 18% of its domestic stock portfolio out of total assets of 700 trillion won as of the end of last year. Although the target ratio decreased by 0.7 percentage points to 17.3% this year, the overall size of the reserve fund has increased, so the change in investment amount is expected to be small.

An official from the securities industry explained, "Pension funds usually manage assets according to a fixed portfolio, and as stock prices plunge, the proportion of domestic stocks in the total asset class decreases, creating additional buying capacity. In the case of the National Pension Service, the domestic stock valuation was about 132 trillion won as of the end of last year, similar to this year's target ratio, but considering that the domestic stock market has fallen more than 30% since the beginning of the year, it is estimated that there is remaining additional investment capacity."

Meanwhile, the stocks that pension funds have intensively purchased over the past month are Samsung Electronics and SK Hynix, with purchases worth 1.15 trillion won and 430 billion won, respectively. Naver (160 billion won), Celltrion (88 billion won), and Korea Zinc (82 billion won) followed.

This content was produced with the assistance of AI translation services.