Local pension funds are increasing stock purchases at a rapid pace in the second half of this year.
They have increased in size for years in the local stock market, and thus their presence there is likely to go up for a while. Still, some experts are voicing concerns that pension funds are stepping in too much in the sluggish stock market.
According to the Korea Exchange, they have net-bought shares worth 1.60 trillion won (US$1.437 billion) since the beginning of the latter half of 2013, 1.83 times more than the size recorded a year earlier. The size had amounted to 4.40 trillion won (US$3.96 billion) in the first half, much more than the 1.06 trillion won (US$952.3 billion) of H1, 2012 as well. If the pace continues, the half-yearly amount is likely to surpass those of H1, 2011 (3.12 trillion won, US$2.8 billion) and H2, 2011 (2.74 trillion won, US$2.46 billion) alike.
The buying spree is found in a variety of industry sectors as well, ranging from electrical and electronics, chemical, transport machinery, and food and beverage to distribution and logistics.
The aggressive stance can be attributed to the increase in the stock holding ratio by the National Pension Service (NPS), which takes up the largest part among pension funds, and the relaxation of the 10% rules. The NPS has recently decided to increase the ratio of stock investment up to 30% of its entire portfolio for the five years to come in an attempt to meet its target return.
Also, the financial authorities are going to ease regulations forcing public-sector investors to observe a five-day disclosure requirement when they own at least 10% of the shares in listed companies. Then, the purchase of blue-chip stocks by pension funds is expected to accelerate.
Another positive factor is the financial authorities’ utilization of pension funds for the revitalization of the capital market. These days, the government is striving to make use of more of the national pension fund in the financial industry instead of for welfare purposes.
Stock market experts are welcoming the trend. “The pension funds are expanding their size in the absence of a sure-fire investment target,” said Samsung Securities research analyst Lim Soo-kyun, adding, “Safety assets’ prospect is getting bleaker, and there are many cases in which foreign pension funds have gained much profit through investment in stocks and risky assets, which means the aggressive stance of the local pension funds is nothing to worry about.”
Some people are raising concerns, though. “Pension funds are required to go for not only high return but also stable asset management,” said an industry source, continuing, “Those concerned over possible fund exhaustion will voice criticism if the pension funds are invested for the purpose of protecting the stock market and dealing with the instability.”