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Market braces for pension fund's stock rebalancing
National Pension Service Chairman Kim Sung-joo speaks at a Ministry of Health and Welfare briefing session at Government Complex Sejong Convention Center, Dec. 16, 2025. Korea Times photo by Wang Tae-seog
By Jun Ji-hye
The National Pension Service (NPS) is expected to resume rebalancing its domestic equity portfolio on Wednesday after its allocation to local stocks climbed well above this year’s target, market analysts said Tuesday.
They warn that the move could generate selling pressure of as much as 74 trillion won ($48 billion), adding to downside risks if it coincides with continued foreign investors’ selling of Korean equities.
Data from Daishin Securities showed that domestic equities accounted for an estimated 30 percent of the NPS portfolio as of Friday, exceeding its 2026 target allocation of 20.8 percent by 9.2 percentage points.
The pension fund periodically adjusts its asset mix to keep each asset class in line with its long-term strategic allocation. When an asset’s share moves too far above or below its target level, the NPS sells assets it holds in excess and increases exposure to those it is underweight in.
By systematically rebalancing its portfolio, the fund locks in gains after strong market rallies while accumulating assets during market weakness, a strategy aimed at enhancing long-term returns and preserving portfolio stability.
This year’s sharp rally in the KOSPI, however, prompted the NPS to temporarily halt its rebalancing activity. In January, the fund’s investment committee decided to suspend portfolio adjustments through the end of June.
More recently, the NPS revised its strategic asset allocation framework at the end of last month, expanding the allowable deviation range for strategic asset allocation from plus or minus 3 percentage points to plus or minus 6 percentage points.
When combined with a plus or minus 2 percentage point tactical asset allocation band, this change effectively increases the total flexibility range to as much as plus or minus 8 percentage points.
These adjustments have raised the upper limit of the NPS’ domestic equity exposure to as high as 28.8 percent.
Local brokerages said the fund’s stock allocation is expected to exceed this limit by June, prompting the fund to sell stocks while increasing bond holdings.
Shinyoung Securities recently estimated that if KOSPI surpasses 9,000, the NPS may need to sell up to 74.4 trillion won worth of domestic equities for rebalancing purposes.
Analysts, however, dismissed fears of an immediate market shock.
Cho Yong-koo, an analyst at Shinhan Securities, said that the NPS has reduced daily rebalancing volumes to cushion the market, meaning selling pressure will be distributed gradually over time.
“Much of this pressure has already been priced in, with pension funds offloading nearly 2 trillion won in May and June,” Cho said. “Because the exact limits and timing of these daily, monthly and annual adjustments remain undisclosed, the NPS retains flexibility to manage its trades smoothly.”
NPS Chairman Kim Sung-joo also reaffirmed the fund’s cautious approach to portfolio rebalancing, aiming to minimize market impact.
“The NPS’ trading decisions carry significant weight as it holds a substantial share of domestic large-cap equities, despite accounting for only about 6 percent of the total market,” Kim said during an online press briefing on June 23.
“Unlike private funds that aggressively liquidate assets for profit-taking or bargain hunting, the NPS takes a highly prudent approach to safeguard market stability.”