[Asia Economy Reporter Park So-yeon] The National Pension Service (NPS) has expanded its 'strategic investment ratio' to reduce selling pressure on domestic stocks in the Korean stock market.
With the strategic asset allocation (SAA) allowable range increased by ±1 percentage point from the current level to ±3 percentage points, the upper limit of NPS's strategic investment ratio has been raised from 18.8% to 19.8%.
Although the SAA allowable range has been expanded, the year-end target ratio remains unchanged at '16.8%±5%', so there is no effect of increasing NPS's overall investment in domestic stocks. Instead, the mechanically generated selling volume due to strategic asset allocation targets may decrease.
The Fund Management Committee (FMC), the highest decision-making body of the NPS, held a meeting on the 9th and changed the domestic stock target ratio maintenance rule (rebalancing) of the National Pension Fund accordingly. This is the first change in the NPS's target ratio maintenance rule since 2011.
The NPS invests the fund in domestic and foreign stocks, bonds, real estate, and alternative assets, and sets the proportion of each asset in the overall portfolio as well as the allowable deviation range from these target ratios.
The target holding ratio for domestic stocks this year is 16.8%, with an allowable deviation range of ±5 percentage points. This consists of strategic asset allocation (SAA) ±2 percentage points and tactical asset allocation (TAA) ±3 percentage points.
SAA allows deviation from the target ratio due to price fluctuations in asset markets, while TAA allows fund managers to strategically deviate from the range to generate additional returns.
The FMC adjusted the SAA allowable range to ±3 percentage points on this day. Since the total allowable deviation range remains at ±5 percentage points, the TAA allowable range was adjusted to ±2 percentage points.
The FMC reviewed two proposals: one to change the SAA range to ±3.5 percentage points and another to ±3 percentage points, ultimately adopting the latter.
Kwon Deok-cheol, Minister of Health and Welfare and chairman of the FMC, said to reporters immediately after the meeting, "Although ±3.5 percentage points would more accurately reflect the current market situation, many committee members preferred a smooth change."
The FMC explained that continuous selling pressure on domestic stocks made the rule change inevitable.
Minister Kwon mentioned in his opening remarks at the meeting, "At the end of March, the strategic asset allocation ratio for domestic stocks exceeded the upper limit of the allowable range," adding, "With four consecutive months of deviation beyond the allowable range, market response is necessary."
As of the end of last year, the domestic stock ratio was 21.2%, significantly higher than the target ratio of 16.8%. As of the end of January, the ratio stands at 21.0%.
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