This Year, 국민연금 Sold Trillions but 'Picked Up' Defense Stocks

9 Companies Increased Shareholding in January, 19 Decreased
Top 2 Shareholding Increases Both Defense Stocks
6 of 9 Companies with Increased Shares Have Low PBR

This year, the National Pension Service (NPS), which sold stocks worth trillions of won in the domestic stock market, has increased its stake in defense industry stocks. It is also notable that most of the stocks with increased investment are 'low PBR-related stocks' with a price-to-book ratio (PBR) below 1. The NPS is the largest institutional investor in Korea, holding more than 5% stakes in 283 companies.

According to the Financial Supervisory Service's electronic disclosure system on the 7th, from January 1 to 31, the NPS traded a total of 28 stocks in which it holds more than 5% stakes. Nine were net purchases, and 19 were net sales. The stock with the largest increase in shareholding ratio was Hyundai Rotem, which rose from 6.97% to 8.08%, an increase of 1.11 percentage points. Hanwha Aerospace (8.10%→9.17%), HK Inno.N (7.22%→8.29%), HDC Hyundai Development Company (5.49%→6.55%), and Lotte Wellfood (5.00%→6.05%) also saw their shareholding ratios increase by more than 1%. Hyundai Steel (0.57% increase), CJ Logistics (0.53% increase), SK Discovery (0.24% increase), and TMC (0.19%) were also stocks in which the NPS increased its holdings.

Both 1st and 2nd Largest Shareholding Increases Are 'Defense Stocks'

The top two stocks with the largest increase in shareholding ratio share the commonality of being leading domestic defense companies. Hyundai Rotem is at the forefront of 'K-Defense' with its K2 tank, and Hanwha Aerospace leads with the K9 self-propelled howitzer. Additionally, in 2022, Poland signed a historic weapons contract worth a total of 20 trillion won with both Hyundai Rotem and Hanwha Aerospace. Hanwha Aerospace's K9 also became the world's market leader through the 'Poland Jackpot.'

Lee Bong-jin, a researcher at Hanwha Investment & Securities, said, "The preference for Korean weapons overseas continues," adding, "Although the amendment to the Export-Import Bank of Korea Act (KEXIM Act), which would increase KEXIM's equity capital limit, was not passed in the regular National Assembly session, there are talks that it could be handled in the February extraordinary session."

Under current law, KEXIM can provide financial support within 40% (6 trillion won) of its statutory capital (15 trillion won). However, when Hanwha Aerospace executed the first contract for the K9 with Poland, the limit was exhausted, and a legislative amendment to increase KEXIM's equity capital (statutory capital) is being discussed in the political arena to continue follow-up contracts.

6 out of 9 Stocks with Increased Holdings Are 'Low PBR Stocks'

The pension fund net sold 677.8 billion won in the domestic stock market in January. The NPS accounts for more than 90% of the pension fund. This is why the number of net sold stocks (19) by the NPS in January was more than double the net bought stocks (9). Despite heavy selling, 6 out of the 9 stocks in the NPS portfolio were 'low PBR stocks' with a PBR below 1. These include HK Inno.N (0.99x), HDC Hyundai Development Company (0.41x), Lotte Wellfood (0.56x), Hyundai Steel (0.24x), CJ Logistics (0.80x), and SK Discovery (0.28x) as of the 6th. The overall KOSPI PBR was 0.94x as of the 5th.

The stock with the largest decrease in NPS holdings was YG Entertainment (YG), which dropped from 5.78% to 4.29%, a decrease of 1.49 percentage points. YG faced overlapping negative factors such as concerns over a 'peak-out' (reaching a peak and showing signs of decline) in the entertainment industry and the failure to renew the exclusive contract of its key revenue source, BLACKPINK. Hyundai Department Store (10.22%→8.81%), Pan Ocean (6.87%→5.74%), Haesung DS (10.39%→9.33%), and Korea Carbon (6.56%→5.52%) also reduced their holdings by more than 1 percentage point. The top five sectors with decreased holdings were entertainment, distribution, transportation, semiconductors, and capital goods, respectively, showing that the NPS continued selling across the domestic stock market without concentrating on any specific sector.