Caught in Corporate Governance Issue
The result of the trial of Samsung Electronics Vice Chairman Lee Jae-yong cannot but affect the stock investment portfolio of the National Pension Service (NPS) of South Korea.
It is expected that the result of the trial of Samsung Electronics Vice Chairman Lee Jae-yong cannot but affect the stock investment portfolio of the National Pension Service (NPS) of South Korea. The ruling is scheduled for August 25.
The NPS has focused on passive investment and large-cap stocks since last year. At present, Samsung Electronics accounts for more than 20% of the domestic stock investment portfolio of the NPS. According to stock market experts, a decline in the ratio of Samsung Electronics in the portfolio can lead to a decrease in the yield of the pension fund while negatively affecting the South Korean stock market as a whole.
According to the National Pension Act, the NPS has to take into account such factors as the corporate governance structures of invested companies and issues related to their environmental and social conditions so that the pension fund can achieve stable profits in the long term. In addition, it has to take into account the invested companies’ financial performance and non-financial performance at the same time before reflecting the result in its decisions related to investment.
If the vice chairman is convicted of bribery and so on, the NPS has to reduce the ratio of Samsung Electronics in the portfolio in accordance with the act. Things are not that simple though. As of the end of last year, the NPS was the largest shareholder in Samsung Electronics with a shareholding of 9.22%. At that time, the Samsung Electronics shares of the NPS totaled 23.4241 trillion won, equivalent to 23.2% of the organization’s total investment in the local stock market. Last year, the NPS recorded a return of 5.64% in that market and its earnings from investment in Samsung Electronics amounted to 6.5 trillion won or so. Samsung Electronics gained more than 30% in the market in the first half of this year and the appraised value of the Samsung Electronics shares of the NPS is estimated to have increased by approximately seven trillion won during the same period.