National Pension Service Raises Domestic Stock Limit, Sparking Transparency and Market Stability Concerns

South Korea's National Pension Service (NPS) has substantially raised its target for domestic stock holdings, increasing the permissible limit from 14.9% to 20.8%. This decision by the NPS Fund Management Committee comes as the value of its current domestic stock portfolio has surpassed the previously established ceiling, largely due to a significant rally in the Korean stock market. The NPS also expanded its "allowable range" for additional investment beyond the target, though the specific figures for this expanded range will not be publicly disclosed for the time being.

The move allows the NPS to hold up to 25.8% plus an additional margin in domestic stocks. With the NPS fund now exceeding 1,800 trillion won, its domestic stock holdings alone surpass 500 trillion won, representing about 27% of the total fund. Without this adjustment, the NPS would have been compelled to sell over 100 trillion won worth of stocks to comply with the old limits, a move that could have triggered a "pension selling bomb" and destabilized the market.

“

The NPS's domestic stock holdings have significantly increased, raising the limit for holding domestic stocks... The adjustment of the standard was inevitable as the market impact could be significant if the NPS were to sell stocks to meet the existing limit.

Despite the necessity of the adjustment to prevent market disruption, the decision has drawn criticism regarding transparency. The refusal to disclose the exact details of the expanded allowable range has fueled concerns that the NPS might be covertly used to support stock prices. Furthermore, critics worry about the long-term implications of an overly concentrated domestic stock portfolio. Such concentration could place significant pressure on the stock market when the NPS needs to liquidate assets to meet future pension payment demands. It also increases the risk of substantial valuation losses if the stock market experiences a downturn, potentially jeopardizing the stability and profitability of the pension fund.

“

However, as side effects are expected due to it, sufficient preparation is needed.