Pension Funds Undertake Tactical Portfolio Rebalancing... Targeting Bottom-Fishing Buys

[Asia Economy Reporter Park So-yeon] Domestic institutions such as pension funds and mutual aid associations have begun replenishing investment funds through portfolio rebalancing. As concerns over an economic recession grow and stock and bond prices decline, these institutions are seeking opportunities for bottom-fishing.

According to the investment banking (IB) industry on the 1st, major pension funds including the National Pension Service and the Government Employees Pension Service are maintaining their mid- to long-term strategic asset allocation plans while tactically looking for opportunities to expand investments in bonds and securities in the short term.

A senior official from the National Pension Fund Management Committee hinted, "We are observing bottom-fishing opportunities by making some portfolio adjustments through changes in overseas bond sub-asset classes." The National Pension Service secures a certain portion of easily liquidatable bonds within its overseas bond assets to respond to market volatility, and it is interpreted that, given the recent market situation, they have made an investment decision to liquidate some overseas bonds to secure new investment destinations.

As of the end of the first quarter of 2022, the National Pension Service's overseas bond investment scale was 64 trillion won. The proportion of overseas bond investments relative to total assets is about 6.9%. The direct management ratio of overseas bond assets is 47.4%. The amount of directly managed overseas bond assets alone reaches 30.3 trillion won. In addition, it is reported that approximately 2 trillion won of newly inflowed funds have been reserved for investment.

The Government Employees Pension Service also began portfolio adjustments by sector last month to secure investment funds. A senior official from the service explained, "We are making some adjustments to parts that can be liquidated now by sector to gather some funds," adding, "Stock and bond prices are improving now, so we are looking for entry opportunities." Mutual aid associations such as the Military Mutual Aid Association and the Police Mutual Aid Association have also been managing liquidity for several months. Although securing funds is not easy due to increased member loans during the interest rate hike period, they believe that rare bottom investment opportunities will arise.

Not only institutional investors but also foreign investors are showing movements to buy domestic stocks. According to Yuanta Securities, Singaporean investors purchased 477 billion won worth of domestic stocks in June. Canadian and Swedish investors also switched to net buying of domestic stocks during the same period. Swiss and Norwegian investors have steadily net bought domestic stocks since the beginning of the year. Norway has the world's largest sovereign wealth fund, and Canada and Sweden have significant pension fund influence. It is interpreted that institutional investors who emphasize a long-term perspective have engaged in bottom-fishing of domestic stocks due to the price merits.

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