Net Purchase of 2.4 Trillion This Month... Pension Funds Return as Saviors in Market Crash

[Image source=Yonhap News]

[Asia Economy Reporter Koh Hyung-kwang] As the stock market was greatly shaken by the pandemic of the novel coronavirus infection (COVID-19), domestic pension funds including the National Pension Service have actively stepped up to 'buy' and are helping to defend the index.

According to the Korea Exchange on the 21st, since the first confirmed case of COVID-19 in Korea on January 20th until the day before, pension funds have net purchased stocks worth 2.892 trillion won in the KOSPI market over about two months.

In particular, pension funds bought stocks worth 573 billion won and 379.7 billion won on the 13th, when both the circuit breaker and sidecar were triggered due to the domestic stock market crash, and the day before, respectively, totaling 2.432 trillion won in purchases 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 the role of a savior whenever the stock market was in crisis. They were also the main players defending against further declines in August last year when the KOSPI fell to the low 1900s due to the US-China trade war and the 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 dumped 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 considered limited in reducing the index's decline. Foreigners have sold stocks worth 10.095 trillion won just this month, with a total net sale of 13.103 trillion won this year. Kim Dong-wan, a researcher at Eugene Investment & Securities, said, "Foreigners' net selling of the KOSPI has reached the highest level 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 operate 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, which is 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 still additional investment capacity."

Meanwhile, the stocks that pension funds have concentrated on buying over the past month are Samsung Electronics and SK Hynix, with purchases worth 1.19 trillion won and 479 billion won, respectively. Naver (162 billion won), Celltrion (91 billion won), and Samsung Biologics (86 billion won) followed.

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