Pension Funds Expected to Continue Selling for a While Due to Portfolio Rebalancing

[Asia Economy Reporter Song Hwajeong] Amid the continued selling pressure from pension funds since the beginning of the year, it is expected that the selling trend will persist for the time being due to asset allocation adjustments.

According to NH Investment & Securities on the 13th, pension funds have net sold 18.1 trillion KRW in the KOSPI from June last year to the 7th of this month. In particular, the pace of net selling by pension funds has accelerated this year. The average daily net selling amount from June last year to the end of the year was 55.6 billion KRW, but this year it has expanded to 376.68 billion KRW.

This net selling by pension funds is analyzed to be due to asset allocation adjustments. Roh Nokgil, a researcher at NH Investment & Securities, said, "The National Pension Service's target domestic stock ratio for this year is 16.8%, down 0.6 percentage points from 2020. As a long-term investor in the stock market, pension funds need to adjust their asset allocation ratio closer to the target," adding, "Considering the National Pension Service's medium-term asset allocation plan, the domestic stock ratio is expected to gradually decline to around 15% by the end of 2025."

It is expected that pension funds' net selling of domestic stocks will continue during the first half of the year. Researcher Roh said, "Despite the acceleration of pension funds' net selling in the KOSPI, considering the index's rise effect, it is still estimated that the domestic stock holdings exceed the 2021 target of 142.8 trillion KRW by a large margin. Assuming the current KOSPI level is maintained, a simple calculation suggests that the additional possible net selling by pension funds in the KOSPI until the end of the year is in the 30 trillion KRW range."

Considering the average daily net selling pace of pension funds this year, it is expected that the target allocation ratio can be achieved by early June. Researcher Roh predicted, "Since the asset allocation target achievement time is the end of the year and the possibility of increased KOSPI volatility within the year is also considered, the pace of pension funds' net selling will slow down before June."

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